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FINANCIAL  TIMES 


World  Business  Newspaper  http*J/www JT.com 


THURSDAY  SEPTEMBER  10  1998 


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European  Union 
‘This  is  a club  which 
people  want  to  join’ 
Lionel  Barter,  Page  10 


High  tech  M&A 
Bigger  deals  change 
face  of  industry 
Page  11 


Switzerland 


How  to  pack 

box  Of  nhnnntetps  V •. 


Page  22 


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WORLD  NEWS 


Yeltsin  silent  on 
choice  of  Russian 
prime  minister 


Russian  president  Boris  Yeftan 
met  Victor  Chemomyrdfn,  the 
acting  prime  minister,  and 
Yevgeny  Primakov,  the  foreign 
minister  - two  of  the  top  prime 
ministerfaf  contenders  - but 
refused  to  name  his  choice. 

Page  12;  Crisis,  Page  2; 

CSFB  cuts  exposure,  Rage  12 

Paris  at  ease  vritfi  tumwi 
The  French  government 
predicted  that  growth  in  the 
eurozone  would  help  the 
economy  overcome  international 
market  turbulence,  estimating 
that  its  domestic  product  would 
rise  next  year.  Page  3; 

Editorial  Comment,  Page  11; 
Eurozone,  Page  23 

Bzenstat  urges  Holocaust  haul 
The  Swiss  government  should 
follow  up  its  banks’  recent 
$1.25bn  settlement  with  Nazi 
victims  by  proceeding  with  an 
earlier  plan  to  set  up  a fund  for 
victims  of  the  Holocaust  and 
other  catastrophes,  US  official 
Stuart  Bzenstat  said.  Page  2 

Ex-murfstBf  heads  for  jafl 
Jos6  Barrionuevo,  Spain's 
long-serving  interior  minister,  was 
preparing  to  be  escorted  to  jail 
by  members  of  his  former 
department  in  the  midst  of  a 
bitter  political  argument  about  his 
conviction.  Page  3 


BUSINESS  NEWS 


BoJ  to  loosen 
monetary  policy  to 
avert  deflation 


The  Bank  of  Japan  is  to  loosen 
monetary  policy  for  the  first  time 
in  three  years  in  an  effort  to  pre- 
vent the  world’s  second-largest 
economy  from  sliding  into  a 
deflationary  spiral-  Page  12; 
Central  Bank  sets  pace,  Page 
4;  Fuji  Bank  foils.  Page  13 


Brussels  blocks  airport  plan 
Claudio  Burlando,  Italy's  trans- 
port minister,  flew  to  Brussels 
after  the  European  Commission 
declared  illegal  plans  to  force  aB 
airlines  but  Alitalia  to  use  Milan’s 
Malpensa  airport.  Page  2 

Boost  for  weapons  agency 
Defence  ministers  of  Britain, 
France.  Germany  and  Italy  signed 
a treaty  giving  legal  status  to  an 
embryonic  European  arms 
procurement  agency.  Page  7 

Fraud  investigator  reinstated 
India  reinstated  one  of  its  fraud 
investigators  after  a rebuke  from, 
the  supreme  court  over  his  • 
sudden  and  controversial  transfer 
to  a low-key  job:  Page  4 

PC  sales  show  global  growth 
Worldwide  personal  computer 
sales  show  soHd  growth  despite 
problems  in  Asia  and  Russia, 
says  the  International  Data 
Corporation.  Page  5 

Treaty  on  hazardous  chemicals 
Ministers  and  officials  from  nearly 
100  countries  meet  in  Rotterdam 
today  to  sign  a treaty  dealing 
with  the  import  of  hazardous 
chemicals.  Pages 

Roods  threaten  Dhaka 
The  Bangladeshi  capital  of  Dhaka 
was  on  foil  alert  as  flood  waters 
threatened  to  break  through  an 
embankment  protecting  600,000 
residents.  Page  4 

Kosovan  refugees  flee  sbeffing 
Thousands  of  people  fled  their 
homes  in  south-western  Kosovo 
under  heavy  shelling  by  Serb 
security  forces. 

Cyber-wars  peace  plan 
The  US  and  the  EU  appear  to  be 
closer  to  agreement  on  a peace 
formula  to  avert  the  world's  first 
cyber-trade  war.  Page  7 

How  Hfe  may  have  begun 
Life  on  earth  may  have  begun  in 
a natural  Jacuzzi  that  babbled 
hydrogen  gas  out  of  the  ocean 
floor.  Page  8 

JAL  and  ANA  ban  smokfog 
Japan  Airlines  end  Ail  Nippon 
Airways  said  all  their  international 
flights  would  be  non-smoking 
from  next  spring. 


Ericsson,  the  Swedish 
telecommunications  company, 
made  its  first  big  foray  into  the 
internet  products  market  by 
acquiring  a majority  stake  in  Cal- 
ifornia-based Advanced  Com- 
puter Communication.  Page  1% 
Technology  mergers,  Page  11 

Peugeot-CHro8n  shares  cfimbed 
sharply  after  the  French  car- 
maker  reported  a more  than  four- 
fold increase  In  first-half  profits, 
at  the  top  end  of  analysts' 
expectations.  Page  16 

Tefeforeca,  the  Spanish 
telecommunications  group.  Is 
poised  to  take  a further  step  in 
its  expansion  Into  the  media  by 
purchasing  Spain’s  third  largest 
radio  network.  Page  16 


The  formal  prospectus  for  the 
sale  of  a 28.5  per  cent  stake  in 
NTT  DoCoMo,  the  Japanese 
mobile  telecoms  group,  wiU  be 
issued  on  Monday,  kicking  off  an 
initial  public  offering  that  analysts 
say  could  raise  $15bn.  Page  13; 


Seagram,  the  Canadian 
entertainment  group,  hopes  to 
complete  its  $10.4bn  takeover 
bid  for  PoiyGram,  the  Dutch 
music  and  film  company,  by  the 
beginning  of  November.  Page  18 

ftitemationaJ  banks  snubbed 
Malaysia's  last-minute  decision 
to  extend  a deadline  for  them  to 
settle  outstanding  ringgit  con- 
tracts, shutting  the  door  on  fur- 
ther financial  dealings.  Page  12 

l&cfcebro,  the  Swedish  real  estate 
company,  said  a SKr3bn  (8377m) 
takeover  bid  for  it  by  Drott,  a 
larger  rival,  undervalued  Jts 
assets.  Page  16 


Iveco,  the  commercial  vehicles 
arm  of  Italy's  Flat,  said  it  should 
report  sharply  higher  sales  and 
profits  when  the  group  reports  its 
first-half  results  on  September 
22.  Page  16 

Carlo  Do  Benedetti,  the  former 
chairman  of  Olivetti,  teamed  with 
BAA,  the  privatised  British  Air- 
ports Authority,  to  bid  In  the 
planned  privatisation  of  Italian 
airports.  Page  16 

Hufttamakl  shares  plunged  more 
than  20  per  cent  after  the  Finnish 
confectionery  and  food  packag- 
ing group  warned  fun-year  profits 
would  be  lower  than  expected 
because  of  the  Russian  crisis. 
Page  IS 


Saotam,  South  Africa's 
second-biggest  life  assurer  and 
asset  manager,  said  its  forthcom- 
ing demutualisation  would  create 
a company  worth  up  to  R18bn  in 
the  country's  biggest  new  stock 
market  listing  to  dale.  Page  13 

Arthur  Levitt,  chairman  of  the 
Securities  and  Exchange  Com- 
mission, the  main  US  regulatory 
agency  for  securities,  announced 
measures  to  improve  transpar- 
ency in  the  US  corporate  bond 
market. 


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O THE  FINANCIAL  TIMES  LIMITED  1998  NoJ3.700 
London  • Leads  - Parts  ■ Frankfurt  ■ Stockholm  - NBao  • »WrW  ■ Mw  Y*fc 
' CWcpgo  ■ Loa  Angetes  - Tokyo  ■ Horg  Kong 


B "7  7 0 1 7 4*7361  42 


UK  gains  euro-zone 


role 


By  Wolfgang  Mfincfcau  in  London  Britain  to  help  co-ordinate  supervision  despite  staying  out  of  Emu 


The  European  Central  Bank  is  to 
allow  the  UK  to  help  coordinate 
banking  supervision  in  the  new 
European  single  currency  zone 
even  though  the  country  is  not 
adopting  the  euro. 

The  concession  reflects  a recog- 
nition of  the  importance  of  the 
City  of  London  as  Europe’s  larg- 
est financial  centre. 

The  UK  is  one  of  four  European 
Union  members  that  will  not  join 
the  single  currency  at  its  launch 
on  January  1 1999.  But  the  ECB's 
board  of  governors  is  expected  to 
admit  the  UK,  Greece.  Denmark 
and  Sweden  to  a key  committee, 
co-ordinating  banking  supervi- 
sion and  ensuring  finnnHai  sta- 


bility, according  to  European 
banking  officials. 

The  decision  - which  could  be 
taken  at  a meeting  of  the  ECB'b 
governing  council  in  Frankfurt 
tomorrow  - is  partly  influenced 
by  renewed  sensitivity  to  the 
importance  of  maintaining  the 
stability  of  the  EU  financial  sys- 
tem following  the  banking  crises 
in  Asia  and  Russia. 

The  decision  is  also  politically 
significant  because  it  further 
blurs  the  distinction  between  the 
ll  “insiders”  who  will  take  part 
in  the  single  currency  from  next 
year  and  the  the  four  “outsiders”. 

The  ECB  already  operates  two 
separate  boards  of  governors  - a 


governing  council,  drawn  from 
the  euro-zone  ll,  that  takes  pol- 
icy decisions,  and  a general  coun- 
cil that  Includes  all  15  central 
bank  governors. 

A previous  vote  to  accommo- 
date the  interests  of  the  outsiders 
came  in  July  when  ECB  gover- 
nors opened  the  Target  payments 
system  to  the  central  and  com- 
mercial banks  of  outsiders  on 
unexpectedly  generous  terms. 
Target  is  expected  to  be  one  of 
the  main  systems  for  inter-bank 
transactions  in  the  euro-zone 
from  next  year. 

A British  official  said  the  deci- 
sion to  include  the  UK  in  the 
supervisory  activities  of  the  ECB 


was  a matter  of  common  sense 
and  came  as  no  surprise. 

“It  would  not  make  any  sense 
at  all  to  exclude  the  UK.  and  I am 
glad  that  this  is  not  happening." 
said  one  senior  European  bank- 
ing official. 

The  UK  will  be  represented  by 
the  Bank  of  England  and  the 
Financial  Services  Authority 
(FSA).  the  financial  market  regu- 
lator. The  committee  is  to  meet 
at  least  four  times  a year. 

Under  Europe's  new  monetary- 
regime.  national  authorities  will 
remain  in  charge  of  banking  and 
financial  sector  supervision:  the 
ECB  head  office  will  play  only  a 
relatively  minor  role.  The  bank- 


ing supervisory  committee  could 
become  a key  body  for  coordinat- 
ing policy  across  national  bound- 
aries and  for  ensuring  that  the 
euro-zone  will  be  equipped  to 
deal  with  financial  turmoil. 

For  example,  the  ECB  and 
national  central  banks  have  not 
yet  laid  down  pan-European  rules 
about  how  national  monetary 
authorities  can  assist  domestic 
banks  in  trouble.  Some  European 
officials  have  defended  the  lack 
of  formal  rules  arguing  that 
transparent  bail-out  regulations 
would  create  moral  hazard  by 
encouraging  banks  to  take  on 
unnecessary  risks. 


Business  and  tbe  Euro,  Page  21 


Clinton  appeals 
for  support  from 
Democrat  leaders 


President  is  urged  to  make  repeated  pleas 
for  forgiveness  as  Starr  report  looms 


By  Richard  Wolfh  a Washington 


US  president  Bill  Clinton  made 
an  emotional  appeal  for  support 
from  Democratic  party  leaders 
yesterday  as  legislators  from 
both  parties  began  preparations 
to  deal  with  the  long-awaited 
report  into  the  Monica  Lewinsky 
sex  scandaL 

In  a 90-minute  meeting  at  the 
White  House,  senior  Democrats 
urged  Mr  Clinton  to  make 
repeated  pleas  far  forgiveness  in 
public  to  rescue  his  embattled 
presidency. 

David  Bonior,  the  Democratic 
whip  in  the  House  of  Representa- 
tives. said:  "What  we  saw  waB  a 
father,  a husband,  a leader  of  our 
country  who  was  contrite 'arid' 
who  was  very  sorry  for  his 
actions.  He  wants  to  carry  on  the 
business  of  tbe  country,  but  he 
clearly  understands  tbe  deep 
pain  that  be  has  caused  his  fam- 
ily, his  colleagues,  the  people  he 
works  with,  members  of  Con- 
gress and  the  country.” 

Kenneth  Starr,  tbe  independent 
counsel  investigating  allegations 
of  sexual  misconduct  and  perjury 
by  the  president,  is  expected  to 
send  his  official  report  to  the 
House  »T  Representatives  within 
a week. 

Republican  and  Democratic 


leaders  of  the  House  yesterday 
agreed  to  publish  the  main  sec- 
tion of  Mr  Starr’s  report  on  the 
internet,  and  to  deal  with  its  find- 
ings in  an  impartial  manner 

Henry  Hyde,  chairman  of  the 
House  judiciary  committee  which 
would  begin  any  formal  impeach- 
ment proceedings,  said:  ^nds  is  a 
lousy  job  but  somebody  has  to  do 
it.  No  one  looks  forward  to  this 
traumatic  journey  that  we’re 
about  to  enter  on.  We  did  agree 
this  morning  that  we’re  going  to 
do  our  level  best,  as  much  as 
humanly  possible,  to  work  in  a 
bipartisan  fashion,  because  we  all 
agree  any  impeachment  cannot 
succeed  unless  it  is  done  in  a 
bipartisan  way.”  • . .. 
• Democrats  insisted  they  were 
iiot  planning  for  impeachment. 
However  Richard  Gephardt  tbe 
leader  of  the  House  Democrats, 
said  legislators  should  follow  tbe 
process  established  during  the 
Watergate  scandal,  which  led  to 
the  resignation  of  president  Rich- 
ard Nixon.  He  said  congressmen 
should  "carefully  consider  and 
try  to  follow”  the  Watergate  pre- 
cedent 

Democrats  yesterday  acknowl- 
edged that  the  president’s  failure 
to  address  the  scandal  had  hurt 
the  party’s  prospects  in  the  mid- 
term congressional  elections  in 


Bffi  CHnton  is  escorted  by  a mStary  drief  at  Andrews  Air  Force  basa  In  Maryland  on  Ms  way  to  Florida  aftw  senior 
Democrats  urged  the  president  to  make  repealed  ptibGc  pleas  for  forghmness  over  the  Lewinsky  scandal  Picture  AP 


November.  HoweveT,  they 
insisted  that  Mr  Clinton  would  be 
able  to  remain  in  office.  Mr  Bon- 
ier said:  “The  American  people 
do  not  want  to  see  this  president 

fail" 

Meanwhile,  senators  continued 
to  debate  impeachment  and  the 
investigation  of  the  president 
both  on  the  floor  of  the  senate 


and  in  committee.  Robert  Byrd, 
the  Democrat  who  is  one  of  the 
most  senior  figures  in  the  Senate, 
criticised  the  president  for  his 
“ill-timed,  ill-formed  and  ill-ad- 
vised” television  address  last 
month  which  attacked  Mr  Starr. 

But  he  also  called  on  Congress 
to  pause  before  beginning 
impeachment  proceedings.  "I 


respectfully  urge  everyone  in  this 
town  to  calm  down  for  a little 
while  and  contemplate  with  seri- 
ousness the  impact  that  our 
actions  may  have  on  the  well-be- 
ing of  the  nation,  your  children 
and  my  grandchildren,”  he  said. 


Different  roles,  Page  10 
Edttorial  Comment,  Page  11 


Procter  & Gamble 
chief  steps  down  to 
aid  reorganisation 


By  Richard  Tomkins  In  Hew  York 


Procter  & Gamble,  the  world’s 
biggest  consumer  products 
group,  yesterday  revealed  that 
John  Pepper  was  preparing  to 
step  down  as  chairman  and  chief 
executive  after  only  three  years 
in  the  job. 

His  successor  will  be  Durk 
Jager,  president  and  chief  operat- 
ing officer,  who  is  the  other  half 

of  tbe  two-person  team  that  took 
charge  of  the  company  to  July 
1995. 

P&G,  which  has  been  strug- 
gling to  meet  its  growth  targets, 
also  shook  investors  with  a warn- 
ing that  profits  in  the  quarter  to 
September  would  be  in  the  “mid 
single  digit”  range,  significantly 
lower  than  expected,  because  of 
flat  volumes. 

The  company  said  it  hoped  to 
make  up  the  lost  earnings  later 
in  Its  financial  year  to  June  30. 
1999,  but  its  shares  slid  S4&.  or  6 
per  cent,  to  $74H  amid  worries 
about  its  growth  prospects. 

The  announcements  cams  as 
P&G  announced  plans  for  a reor- 
ganisation that  will  change  the 
way  it  does  its  business  world- 
wide. 

Tnctend  of  befog  Split  fotO  four 

geographical  units  serving  the 
world’s  main  regions,  the  com- 
pany will  be  reorganised  into 
seven  global  business  units 
responsible  for  each  of  its  prod- 


uct areas  world-wide.  The  plan, 
dubbed  Organisation  9005,  was 
flagged  in  the  company’s  annual 
report  last  week.  But  the  man- 
agement changes  announced  yes- 
terday were  a surprise. 

Mr  Pepper,  60,  said  be  had 
decided  to  hand  over  the  top  job 
to  Mr  Jager,  55,  because  the  reor- 
ganisation would  take  many 
years  and  it  was  important  that 
ft  should  be  headed  by  someone 
who  would  be  there  to  see  it 
through. 

Mr  Jager,  who  was  firmly 
established  as  the  heir  apparent, 
will  take  over  as  chief  executive 
on  January  I next  year,  leaving 
Mr  Pepper  as  chairman  until  Sep- 
tember 1,  when  Mr  Jager  will 
take  that  job,  too. 

The  reorganisation  is  aimed  at 
making  P&G  more  responsive  to 
consumers’  needs,  increasing  the 
pace  of  Innovation,  and  speeding 
up  the  time  it  takes  to  bring  new 
products  to  market 

P&G’s  sales  have  recently  been 
falling  far  short  of  the  levels  it 
needs  to  meet  its  goal  of  doubling 
revenues  to  $70bn  by  tbe  year  to 
June  2006.  Mr  Pepper  said  P&G 
still  aimed  to  achieve  that 
long-term  goal.  But  Clayton 
Daley,  chief  financial  officer,  said 
volumes  in  the  quarter  to 
September  were  likely  to  be 
flat 


WaB  Street  Uses,  Page  18 


CONTENTS 


World  Nows  2-7  UK  News  8 
Features  22  Comment  & Analysis  10,11 
Companies  & Finance  13-20  World  Stock  Markets  30-36 


Rtf  contents  and  Lex  back  page 


I® 


Are  you  a 
director  of  a 
business P 


ASK  YOURSELF  THE  FOLLOWING  QUESTIONS: 


Do  you  want  your  needs  to  be  represented  to  Government  by  an 
influential  organisation?  • 

Do  you  need  frig {justness  Information  and  advice  from  experts? 

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FTOOfiA 


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2 


Russia 

outlines 

tax 

changes 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  i 6 -2998 


WORLD  mNEWS 


an r 


EUROPE  


FINANCIAL  TIMES 
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Bitdjt  London  S£1  9HL 
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Ukraine  in  debt  default  warning 


NEWS  DIGEST 


MOVES  ON  INTEREST  RATES  AND  ZLOTY 


By  Charles  Clover  to  Kiev  and 
Jeremy  Grant  in  London 


By  Ctirystia  Freeland  In  Moscow 


Russia’s  fragile  government 
yesterday  announced  tax 
changes  and  outlined  an 
anti-crisis  package,  as  minis- 
ters struggled  to  conduct 
business  as  usual  In  the  face 
of  growing  political  uncer- 
tainty. 

The  flurry  of  economic 
measures  coincided  with  a 
significant,  if  probably  short- 
lived, appreciation  of  the 
rouble. 

The  official  rate  jumped  to 
15.5  against  the  US  dollar, 
from  the  central  bank's  offi- 
cial rate  of  20.8-  Analysts 
said  the  rouble's  recovery 
was  unlikely  to  last,  but  it 
was  a welcome  sign  for  the 
cabinet,  whose  authority  has 
been  eroded  by  a battle 
between  parliament  and  the 
Kremlin  over  who  will  be 
Russia’s  next  prime  minis- 
ter. 

In  the  government's  first 
concrete  attempts  to  respond 
to  the  economic  crisis,  Vic- 
tor Chernomyrdin,  the  act- 
ing prime  minister,  focused 
on  the  tax  system,  a long- 
standing weakness  made 
more  severe  by  the  paralysis 
of  the  banking  system. 

Yesterday,  the  acting 
prime  minister  scrapped  a 3 
per  cent  increase  in  import 
duties  on  medicines  and 
some  medical  equipment 
The  duty  had  been  imposed 
by  the  previous  government 
tinder  pressure  from  the 
International  Monetary 
Fund,  to  increase  tax  collec- 
tion. But  the  financial  crisis, 
which  has  sparked  fears  of  a 
shortage  in  imported  medi- 
cines and  food,  has  forced  a 
change  in  focus. 

The  Kremlin  also 
announced  its  own  economic 
plan,  Russian  news  agencies 
reported  yesterday.  The  plan 
included  guaranteeing  food 
supplies  to  the  armed  force 
and  indexing  wages  and  pen- 
sions. 

Mr  Chernomyrdin  said  the 
government  was  considering 
cutting  the  oil  excise  tax.  Oil 
companies  have  been  calling 
for  a reduction  for  months, 
hut  the  government  had 
been  reluctant  to  give  way 
because  the  ofl  excise  tax  is 
one  of  the  treasury's  chief 
sources  of  revenue. 

The  cabinet  has  also  intro- 
duced a number  of  changes 
in  the  tax  collection  system, 
in  an  effort  to  prevent  the 
collapse  of  the  financial  sys- 
tem and  rising  inflation. 

Russia's  14  oil  companies 
and  Gazprom,  the  natural 
gas  giant,  will  be  allowed  to 
pay  their  taxes  in  hard  cur- 
rency, a step  economists  said 
was  a standard  response  to 
the  very  high  levels  of  infla- 
tion the  country  is  expected 
to  endure  over  the  next  few 
months. 

The  government  also 
ordered  the  transfer  of  the  | 
tax  accounts  of  Russia’s  50  j 
largest  companies  from  pri- 
vate banks  to  tbe  central 
bank  or  to  state-owned 
banks. 

Over  the  past  few  days. 
Boris  Fyodorov,  the  first 
deputy  prime  minister,  has 
also  released  further  details 
of  the  broader  anti-crisis 
package  the  government 
would  like  to  Implement,  if  it 
is  confirmed  by  parliament. 

The  plan  calls  for  a bal- 
anced budget,  perhaps  using 
international  credits;  peg- 
ging the  rouble  to  hard  cur- 
rencies, possibly  via  a cur- 
rency board,  for  five  years 
starting  December  i:  elimi- 
nating all  bank  reserve 
requirements  on  October  1; 
and  a radical  cut  in  taxes 
and  an  amnesty  for  old  tax 


Ukraine’s  finance  minister 
warned  yesterday  that  his 
country  could  be  forced  to 
default  on  its  debt  unless 
foreign  investors  accepted  a 
voluntary  deal  to  swap  trea- 
sury bULs  for  debt  with  lower 
yields  and  longer  maturities. 

The  comments  from  Ehor 
Mityukov  came  as  the  gov- 
ernment released  details  of 
the  proposed  swap,  and  as 
Moody’s  Investors  Service 
announced  that  it  was  down- 
grading Ukraine’s  credit  rat- 
ing, citing  the  depletion  of 
foreign  exchange  reserves  to 
“dangerously  low  levels”. 

Moody's  said  that  with 
reserves  at  5800m.  or  enough 
to  pay  for  only  one  month  of 


imports,  there  was  an 
increased  risk  of  Kiev 
defaulting  on  Its  foreign 
debt.  As  a result  It  was 
downgrading  Ukraine  from  a 
B3  to  a B2  rating- 

Mr  Mityukov  warned  that 
the  International  Monetary 
Fund  had  indicated  it  could 
suspend  a recently  agreed 
$2J2bn  loan  programme  to 

Ukraine,  if  it  did  not  manage 

to  restructure  the  80  per  cent 
of  its  domestic  debt  held  by 
foreign  investors. 

“Unfortunately,  this  is  a 
new  condition  discussed 
with  the  IMF's  board  of 
directors."  said  Mr  Mityu- 
kov. "The  extension  of  the 
maturities  on  the  local  trea- 
sury bill  market  could  be 
one  of  the  performance  crite- 
ria” for  the  IMF  loan. 


The  government  he  said, 
“probably  would  be  forced  to 
default  on  its  obligations''  if 
the  conversion  was  not  suc- 
cessful 

Ukraine  has  been  faced 
with  a crisis  similar  to  Rus- 
sia's. Overborrowing  by 
Moscow,  followed  by  a wave 
of  redemptions  by  investors 
this  year  prompted  by  the 
collapse  of  the  rouble,  cre- 
ated a run  on  the  currency. 

The  central  bank  effec- 
tively devalued  the  hyrvnia 
last  Friday  when  it  widened 
its  trading  range  from 
between  1.8  and  2.25  against 
the  dollar  to  between  25  and 
3.5  against  the  US  currency. 

Foreign  investors  hold 
about  I-8bn  hyrvnia  (5590m) 
in  T-biBs  - known  as  OVDPs 
- and  are  being  asked  to 


swap  them  for  lower-yielding 
securities  with  longer  matu- 
rities. Foreign  investors  will 
have  tbe  option  to  roll  over 
maturing  treasury  bills  into 
two-year  securities  with  min- 
imum dollar  yields  of  22  per 
cent,  and  hyrvnia  yields  of 
40-45  per  cent  Local  inves- 
tors faced  a similar  restruct- 
uring at  40  per  cent  yields 
late  last  month. 

The  new  securities,  how- 
ever. will  be  issued  at  far 
below  market  yields.  Ukrai- 
nian eurobonds  with  2*3  year 
maturities  are  trading  on  tbe 
secondary  market  at  yields 
of  50-100  per  cent,  which 
makes  a yield  of  22  per  cent 
seem  paltry  to  most  inves- 
tors. 

“Obviously  it's  not  very 
attractive  but  tbe  positive 


thing  is  that  it's  being  man- 
aged, better  than  the  recent 
swap  in  Russia.  It’s  also  not 
as.  confiscatory."  said  Tim 
A&k;econdmistat  West  Mer- 
chant Bank.  Investors  in 
Russia’s  T-bOl  (GKO;  market 
have  been  forced  to  write 
down  op  to  95  per  cent  of 
their  original  investments. 

A western  investment 
banker  said  the  IMF  was 
anxious  that  its  money  was 
not  used  to  pay  off 
short-term  speculative  inves- 
tors. 

However,  Mr  Mityukov 
said  the  conversion  was  nec- 
essary to  ensure  the  govern- 
ment's continued  solvency. 

Foreign-held  treasury  bills 
account  for  some  40  per  cent 
of  Ukraine's  debt  service 
until  the  end  of  the  year. 


Poland  signals  confidence 
towards  financial  markets 


if  2" 


f0" 


til 


Poland  yesterday  cut  Interest  rates  and  reduced  the  speed 
by  which  the  zloty  is  permitted  to  fall  - steps  that  sig- 
nalted  the  authorities'  confidence  in  the  country’s  ability  to 
weather  the  storm  in  international  financial  markets. 

The  National  Bank  of  Poland,  the  central  bank,  reduced 
its  key  28-day  rate  by  one  percentage  point  to  18  per 
cent,  and  cut  from  0.65  per  cent  to  0.5  per  cent  the 
amount  by  which  the  zloty  is  permitted  to  fall  each  month 
against  a basket  of  currencies.  The  currency  is  allowed  to 
trade  10  per  cent  above  or  below  a central  rate  set  by  the 
bank. 

In  the  immediate  wake  of  fire  latest  turmoil  induced  by 
Russia’s  debt  moratorium  in  August,  the  currency  fell 
sharply  but  has  since  recovered  and  is  now  trading  above 
the  mid-point  of  its  range.  Stefan  Wagstyl,  London 


POLAND  AND  NATO 


Moscow  crisis  leads  GKO  freeze 


EBRD  into  loss 


By  Kevin  Done 

East  Europe  Correspondent 


The  crisis  in  Russia  has 
pushed  the  European  Bank 
for  Reconstruction  and 
Development  into  its  first 
loss  for  six  years. 

The  bank  said  yesterday 
that  it  would  be  forced  to 
make  provisions  of  around 
Ecul59rn  (5181m;  in  the  third 
quarter  against  its  exposure 
to  Russia,  where  it  is  the 
world's  biggest  foreign  direct 
investor  in  the  private  sec- 
tor. The  scale  of  the  provi- 
sions was  expected  to  plunge 
it  into  a net  loss  of  around 
Ecul50m  for  the  first  ninp 
months  of  1958,  compared 
with  a net  profit  of  Ecu29m 
in  the  first  six  months. 

Steven  Kaempfer,  EBRD 
finance  vice-president,  said 
the  bank  would  be  bit  by 
total  provisions  in  the  third 
quarter  of  around  EculSOm 
in  response  to  tbe  current 
flniinftiMi  and  political  crisis 
in  Russia  and  otheT  coun- 
tries in  the  region. 

In  its  first  official  response 
to  the  turmoil  in  Russia 
since  tbe  rouble  was  deval- 
ued in  mid-August,  the 
EBRD  board  underlined  its 
continuing  commitment  to 
Russia,  where  it  had  loan 
and  equity  investments  at 
the  end  of  July  totalling 
Ecu2.7bn.  equivalent  to  27 
per  cent  of  its  total  banking 
portfolio  of  Ecu9_9bn. 

Mr  Kaempfer  said  that 
the  bank’s  AAA  credit 
rating  was  not  endangered, 
and  that  its  Ecu20bn 
authorised  capital  was  “fully 
adequate"  to  sustain  all 
of  its  operations  through- 
out east  Europe  and  the 


decision  ‘must 
be  reversed’ 


By  Arkady  Ostrovsky  in  Moscow 


Russian  investors,”  said  Mr 
Vasilyev. 

According  to  Flemings,  the 
Scottish  management  group, 
the  Russian  embryonic 
mutual  funds  market  had 
already  shrunk  from  540m  in 
July  to  about  57m.  “We  were 
lucky,  because  we  did  not 
have  time  to  invest  in  Rus- 
sian debt,"  says  Jan  Hoch- 
critt,  the  fund's  marketing 
manager. 

Though  Russian  mutual 
funds  are  lobbying  the  gov- 
ernment to  pay  off  its  debt 
on  "special  terms",  Mr  Vasi- 
lyev insists  there  should  be 
no  discrimination  against 
foreign  investors  in  redeem- 
ing GKOs,  as  this  would  fur- 
ther undermine  western  con- 
fidence in  Russia. 

Mr  Vasilyev  says  that  to 
save  the  Russian  financial 


Horst  Kohler  the  bank  win  not  wtlhctaw  from  Russia 


former  Soviet  Union. 

As  a result  of  its  latest 
measures,  the  EBRD  has 
increased  total  provisions  in 
Russia  to  Ecu 330m.  covering 
around  30  per  cent  of  its 
non-sovereign  loan  and 
investment  exposure  in  the 
country. 

Horst  Kdbler.  the  recently 
appointed  president  of  tbe 
EBRD,  said  at  its  meeting 
yesterday  the  board  had 
“strongly  emphasised  that 
the  bank  will  not  withdraw 
from  Russia.  The  transition 
will  take  time  and  requires 
long-term  commitment” 

He  said  that  “Russia’s  pri- 
ority must  now  be  to  form  a 
government  without  delay  in 
order  to  end  the  political 
vacuum  and  move  ahead 
with  reforms.  It  is  vital  that 
Russia  deepens  its  commit- 
ment to  the  market  economy 
and  creates  a climate  where 
investment  can  grow.” 

Mr  Kaempfer  said  that  the 
EBRD,  along  with  some 
other  international  financial 
institutions,  had  been 
exempted  by  the  Russian 


government  from  the  90-day 
moratorium  on  foreign  com- 
mercial debt  repayments. 
Tbe  exemption  also  covered 
commercial  banks  involved 
in  loan  syndicates  organised 
by  the  EBRD. 

The  bank  had  zero  expo- 
sure to  the  Russian  GKO 
domestic  debt  market  and 
Mr  Kohler  said  that  most  of 
the  EBRD’s  87  projects  in 
Russia  were  “of  a long-term 
industrial  nature." 

However,  the  biggest  con- 
centration of  the  EBRD's 
exposure  in  Russia  is  to  the 
troubled  banking  sector, 
accounting  for  Ecu489m  or 
34  per  cent  of  the  total,  fol- 
lowed by  the  oil  and  gas  sec- 
tor with  E cu260m,  or  18  per 
cent 

The  EBRD  has  around 
Ecul40m  of  payments  from 
Russia  due  by  the  end  of  the 
year,  but  Mr  Kaempfer  said 
that  all  of  its  payments  from 
Russia  were  on  schedule. 
The  bank  was  reviewing  its 
projects  case  by  case,  but  it 
had  not  yet  delayed  any  dis- 
bursements. 


The  Russian  financial 
system  is  facing  imminent 
collapse  unless  the  govern- 
ment immediately  reverses 
its  decision  to  freeze  the 
treasury  bill  market,  accord- 
ing to  Dmitry  Vasilyev, 
chairman  of  the  federal  com- 
mission for  the  securities 
market. 

Mr  Vasilyev  warned  that 
medical  insurance  compa- 
nies, pension  funds  and 
emerging  mutual  funds, 
which  have  largely  invested 
in  government  bonds 
(GKOs),  would  be  worst  hit. 

“It  is  not  just  an  economic, 
but  a huge  social  problem. 
Some  medical  insurance 
companies  are  100  per  cent 
dependent  on  the  GKO  mar- 
ket. which  means  we  are 


going  to  have  a problem  of  system, 


government 


providing  medical  service  to 
Russian  citizens.”  he  said. 

Despite  their  minuscule 
size,  Russian  mutual  funds, 
private  pension  funds  and 
insurance  companies  are 
important  because  tbey  have 
been  seen  as  a symbol  of  eco- 
nomic and  social  stability. 

They  were  also  the  first 
attempt  to  build  a viable 
financial  system  by  channel- 
ling idle  savings  of  small 
domestic  investors,  which 
were  often  kept  under  pil- 
lows. into  a working  invest- 
ment 

“There  is  a threat  that 
mutual  funds  which  are 
solely  invested  in  GKOs,  pre- 
sumably will  have  to  be 
closed,  and  this  would  mean 
an  enormous  default  against 


must  reverse  its  decision  to 
freeze  the  GKO  market  and 
begin  immediate  talks  with 
Russian  and  foreign  credi- 
tors about  restructuring  the 
debt,  which  would  be  accept- 
able to  Russian  and  foreign 
investors. 

“The  government  should 
immediately  unfreeze  the 
debt  market  and  start  [sec- 
ondary] trading  in  GKOs  to 
give  some  liquidity  to  the 
financial  system.  This  is  also 
one  of  the  most  important 
conditions  of  reviving  the 
banking  sector,  paralysed  by 
non-payments,”  Mr  Vasflyev  < 
said.  ! 

Paralysis  of  the  banking 
system  would  mean  a fur- 
ther slide  to  barter  trading, 
be  added. 


Swiss  urged  to  pursue 
Holocaust  fund  plan 


By  David  Buchan  hi  Parts 


The  Swiss  government 
should  follow  up  its  banks' 
recent  Sl.25bn  settlement 
with  Nazi  victims  by  pro- 
ceeding with  its  original 
plan  to  set  up  a larger  Soli- 
darity fund  for  victims  of  the 
Holocaust  and  other  catas- 
trophes. a senior  US  official 
said  yes.erday. 

Stuart  Eizenstat,  the  State 
Department  official  who  has 
led  much  of  tbe  quest  for 
compensation  for  Holocaust 
victims,  admitted  that  “pub- 
lic opinion  in  Switzerland  is 
still  very  raw”  about  tbe 
demands  on  its  banks,  which 
many  in  the  country  saw  as 
extortionate. 

But  he  said  he  hoped  that, 
with  the  threat  of  US  finan- 
cial sanctions  now  removed, 
the  Swiss  government  would 
return  to  its  idea  of  putting 
the  Solidarity  fund  to  a ref- 
erendum. 

Mr  Eizenstat  also  said  he 


expected  Switzerland  to  con- 
tinue the  work  of  the  Bergier 
commission  ou  the  country's 
wartime  role  and  to  promote 
its  findings. 

He  also  hoped  the  country 
would  distribute  money 
donated  by  the  Swiss 
National  Bank  and  private 
companies  to  Holocaust  vic- 
tims, and  pursue  to  the  end 
the  work  of  the  Volcker 
Inquiry  into  dormant  bank 
accounts. 

Mr  Eizenstat  was  speaking 
in  Paris  at  the  formal  closing 
of  the  post-war  Tripartite 
Gold  Commission  (TGC) 
under  which  the  US.  Britain 
and  France  have  supervised 
the  return  of  337  tonnes  of 
gold  to  11  countries  whose 
central  bank  reserves  wap 
looted  by  the  occupying 
Nazis. 

While  the  commission  has 
now  dosed,  the  opening  of 
its  archives  to  the  public 
may  maintain  the  contro- 
versy. 


Shimon  Samuels,  interna- 
tional director  of  the  Wicsen- 
thal  Centre,  said  the  newly 
opened  archives  “will  help 
us  in  the  paper  trail"  that 
led  to  “some  iniquitous” 
decisions,  such  as  the  TGC's 
return  of  52  tonnes  to  gold  to 
Austria. 

He  also  hoped  the  archives 
would  shed  some  more  light 
on  tiie  presence  of  “victim 
gold”  among  the  central 
bank  bullion  handled  by  the 
commission. 

The  two  remaining  issues 
of  looted  assets  involved 
insurance  and  art,  Mr  Eizen- 
stat said. 

He  said  that  next  Monday 
US  insurance  commissioners 
and  a dozen  European  insur- 
ance companies  were  due  to 
set  up  a “Volcker-style" 

inquiry,  into  the  fate  of  vic- 
tims' policies. 

This  would  have  to  be 
"brought  together"  with  the 
US  dass  action  suit  against 
the  insurers,  he  said. 


From  left:  Stuart  Eisenstat  of  the  US,  Anthony  Layden  of  Great 
Britan  and  Claude  Martin  of  France,  in  Paris  yesterday 


He  had  no  plans  to  medi- 
ate in  this  case  or  in 
suits  against  Deutsche 
and  Dresdner  banks  of  Ger- 
many and  other  German 
companies,  such  as  Volkswa- 
gen. which  have  been 


accused  of  using  forced 
labour. 

But  Mr  Eizenstat  did  not 
rule  out  such  a role,  given 
the  cases'  potential  for  fuel- 
ling tension  between  the  US 
and  European  countries. 


Brussels  bans  Milan  airport  plan 


By  Michael  Smith  in  Brussels 
and  Paul  Betts  at  Milan 


Claudio  Burlando.  Italy's 
transport  minister,  flew  to 
Brussels  for  emergency  talks 
yesterday,  after  the  Euro- 
pean Commission  declared 
Illegal  his  country's  airport 
plans. 

The  Commission,  the 
European  Union's  executive, 
ruled  that  Italy's  plans  to 
force  all  airlines  but  Alitalia 
to  use  the  expanded  Mal- 
pensa airport  at  Milan  were 
“discriminatory  and  there- 
fore incompatible  with  Euro- 
pean law”. 


Hopes  for  a settlement 
rose,  however,  after  the 
Commission  decided  to  delay 
the  decision's  adoption  into 
law  until  its  weekly  meeting 
next  Wednesday.  Neil  Kin- 
nock.  EU  transport  commis- 
sioner, warned  that  the  talks 
would  be  time-limited.  “We 
cannot  extend  them  beyond 
a few  days."  he  said. 

The  Italian  government 
has  instituted  rules  that 
would  force  foreign  airlines 
to  transfer  flights  to  Mal- 
pensa, scheduled  to  open  on 
October  25.  from  the  existing 
Linate  airport 

Nine  airlines  have  com- 


plained that  the  Italian  rales 
are  discriminatory,  because 
Alitalia  would  be  the  only 
large  airline  allowed  to  feed 
its  hub.  in  Rome,  from  Lin- 
ate.  Malpensa  is  about  50km 
from  Milan's  centre  ■ and 
local  transport  links  from 
the  city  have  yet  to  be  com- 
pleted. The  airlines  argue 
Malpensa  is  unattractive  to 
potential  passengers,  who 
are  likely  choose  to  fly  from 
- and  thus  with  Alit- 
alia - in  preference  to  mak- 
ing the  long  trip  to  Mal- 
pensa. 

After  considerable  sabre 
rattling  over  the  last  few 


weeks,  when  Italy  even 
threatened  complete  closure 
of  Linate,  the  Italian  authori- 
ties now  appear  prepared  to 
accept  a gradual  phase-in  of 
Malpensa  to  allow  for  the 
completion  of  the  road  and 
rail  infrastructure. 

A compromise  is  expected 
to  involve  a partial  transfer 
erf  flights  from  Linate  to  Mal- 
pensa. Romano  Prodi,  Italian 
prime  minister,  said  yester- 
day that  Malpensa  was  an 
issue  of  “national  interest 
for  Italy”. 

Under  the  ElTs  aviation 
liberalisation  rules,  member 
states  can  distribute  traffic 


across  their  airport  systems 
as  they  see  fit,  but  they  must 
do  it  “without  discrimina- 
tion on  grounds  of  national- 
ity or  identity  of  tbe  air  car- 
rier". 

The  Commission  believes 
Italy  is  infringing  the  rules 
because  it  had  decreed  that 
only  routes  with  more  than 
2m  passengers  a year  could 
remain  at  Linate,  the  effect 
of  which  was  that  only 
flights  to  Rome  could  oper- 
ate from  MnatP 

Mr  Kinnock  said  yesterday 
that  operating  conditions 
and  access  to  air  markets 
had  to  be  equitable. 


Poland  risks  becoming  a second  class  member  of  Nato 
when  It  joins  the  military  alliance,  because  of  delays  In 
implementing  security  clearance  procedures  for  several 
thousand  top  civilian  and  military  officials,  a member  of  the 
Polish  parliament’s  national  defence  committee  said  yes- 
terday. 

Wojciech  Wlodarczyk  was  commenting  on  a newspaper 
report  stating  that  Poland's  State  Security  Office  (UOP) 
had  yet  to  send  out  the  security  questionnaires  which  it 
received  from  Nato  in  march.  Poland,  Hungary  and  the 
Czech  Republic  are  due  to  join  Nato  next  spring. 

The  questionnaires  cover  career  details,  political  views 
and  sexual  proclivities.  Answers  have  to  be  verified  by 
Poland’s  security  services  or  Nato  itself,  depending  on  the 
level  of  security  clearance. 

The  report  in  the  rightwing  Gazeta  Polska  weekly  quotes 
government  officials  as  saying  there  is  no  hope  of  Poland 
completing  the  security  procedures  by  next  January,  the  " 
date  whet  Poland  has  said  it  will  be  ready  to  join  the  alli- 
ance. Christopher  Boblnski,  Warsaw 


« 'm$. 


ITALIAN  ECONOMY 


Prodi  sees  slower  GDP  growth 


FRENCH  INVESTIGATION 


Magistrates  order  probe 


SWISSAIR  CRASH 


Suit  filed  in  New  York 


SAirGroup.  the  parent  company  of  the  airline  Swissair, 
declined  comment  yesterday  on  news  that  a lawsuit  had 
been  filed  over  the  crash  last  week  just  off  the  coast  of 
Nova  Scotia  in  which  229  people  were  killed.  *We  have 
not  yet  seen  the  suit,"  said  SAirGroup. 

The  suit,  filed  In  a Brooklyn  federal  court  by  boring  fig- 
ure Jake  LaMotta,  was  the  first  filed  over  the  crash.  Mr 
LaMotta  brought  the  suit  on  behalf  of  his  son  Joseph.  49, 
who  was  killed  while  on  his  way  to  Switzerland  to  promote 
a business  venture. 

The  suit  seeks  more  than  $50m  in  damages  from  Swiss- 
air, Delta  Airlines,  McDonnell  Douglas,  which  manufactured 
the  MD-ii  aircraft,  and  Boeing,  which  now  owns  McDon- 
nell Douglas.  Officials  have  not  yet  determined  the  cause  - 
of  the  crash.  Reuters,  Zurich 


CARLOS  LINK  CLAIMED 


Germany  to  request  extradition 


Prosecutors  said  yesterday  that  Germany  would  request 
the  extradition  from  France  of  Hans-Joachim  Klein,  a for- 
mer accomplice  of  “Carlos  the  Jackal”,  the  guerrilla  who 
was  active  in  the  1970s. 

Mr  Klein,  aged  50,  who  is  wanted  on  charges  of  murder 
and  kidnapping  and  is  also  sought  by  Austria,  was 
arrested  in  northern  France  on  Tuesday  after  being  on  the 
run  for  more  than  20  years.  He  was  detained  by  an  anti- 
terrorist squad  near  the  Normandy  village  of  Sainte-Honor- 
Ine-la-Guillaume,  where  he  had  been  living  under  an 
assumed  name. 

Job  TTlmann,  a Frankfurt  prosecutor,  said  the  justice 
ministry  in  the  state  of  Hesse  planned  to  file  the  extradition 
request  to  prosecutors  in  France.  Mr  Klein  was  tracked 
down  in  a joint  operation  by  French  and  German  police. 

Prosecutors  say  Mr  Klein  took  part  in  Carlos's  most 
spectacular  attack,  the  1975  kidnapping  of  Qpec  oil  minis- 
ters in  Vienna  in  which  three  people  were  killed.  An  Aus- 
trian justice  ministry  official  said  Vienna  would  also  apply 
for  Mr  Klein’s  extradition,  but  could  not  yet  say  what  the 
charges  would  be.  Mr  Klein  suffered  a serious  stomach 
wound  in  the  kidnapping  erf  the  Qpec  oil  ministers,  but 
was  treated  and  then  allowed  to  fly  to  Algiers  with  Cartos, 
his  other  accomplices  and  their  hostages.  Reuters,  Bonn 


Romano  Prodi,  Italy’s  prime  minister,  has  acknowledged:' 
for  the  first  time  that  his  country’s  gross  domestic  product 
would  grow  this  year  by  just  2 per  cent,  well  below  tte  _ 
level  forecast  by  the  Treasury  in  its  three-year  economic 
plan  in  April. 

In  a radio  interview,  Mr  Prodi  said  the  downgrading  at 
Italy's  growth  prospects  had  taken  place  because  of 
recent  crises  in  Asia  and  Russia.  “It  is  certainly  not  the  - 
fault  of  Italy  and  Europe  if  Russia  and  Asia  have  suddenly 
entered  a crisis.”  he  said.  His  preoccupation  was  to  cany, 
out  reforms  that  would  boost  economic  growth,  he  added. 

Mr  Prodi’s  comments  came  as  Confindustria,  the  - -?* 
employers'  federation,  gave  a sober  forecast  for  ItaBan 
unemployment,  warning  that  the  figure  would  not  fall 
below  12  per  cent  in  1999  as  the  government  has  pre- 
dicted. In  its  autumn  economic  analysis,  Confindustria  sad 
the  reform  of  Italy's  public  finances  appeared  well  on 
track,  partly  because  the  recent  sharp  drop  in  Italian  gov- 
ernment bond  yields  had  significantly  lowered  Italy's  debt 
servicing  costs.  James  Blitz,  Rome 


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French  magistrates  yesterday  ordered  a probe  Into  Jearv- 
Frangois  Henin,  the  ex-chairman  of  Altus  Finances,  a 
branch  of  the  state-owned  bank  Cr6dit  Lyonnais,  for  sus- 
pected misuse  of  company  funds.  Mr  Henin  was  formally 
placed  under  Investigation  in  connection  with  Altus 
Finances’  1993  purchase  of  waste-processing  company 
Safer  Parachini,  according  to  judicial  officials.  The  magis- 
trates are  investigating  suspected  fraud  in  the  FFr700m  . 
purchase  and  in  fees  paid  to  people  involved  in  the  deaL 
Mr  Henin  was  released  on  bail  of  FFrlm  ($172,000)  after 
two  days  in  police  custody  for  questioning.  He  is  already 
being  formally  investigated  on  suspicion  of  being  an 
accomplice  in  bankruptcy  over  the  role  of  Altus  Finances 
in  propping  up  Groupe  Moriand,  which  bought  a local  food 
transport  firm,  Escouian.  and  later  went  bankrupt  with  a 
cost  to  Altus  and  taxpayers  of  more  than  FFr2bn.  Altus 
Finances  played  an  important  role  in  Cfadit  Lyonnais’ 
acquisition  of  a big  portfolio  of  stakes  in  French  compa- 
nies. Reuters,  Paris 


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German  rate 
of  growth 
slows  down 


By  Tobias  Buck  in  Bonn 

Germany’s  rate  of  growth 
declined  sharply  in  the  sec- 
ond quarter  this  year,  with 
gross  domestic  product 
growth  slowing  to  a year-on- 
year  rate  of  1.7  per  cent  The 
figure  offers  Chancellor  Hel- 
mut Kohl  little  comfort 
ahead  of  the  general  election 
on  September  27. 

The  economy  all  but  stag- 
nated between  the  first  and 
second  quarter,  with  quar- 
ter-on-quarter  growth  of  0J 
per  cent  slightly  below  mar- 
ket expectations  of  between 
02  and  0j3  pen-  cent 

After  revisions,  first-quar- 
ter GDP  growth  was  4£  per 
cent  year-on-year,  the  high- 
est rate  since  German  unifi- 
cation in  1990.  according  to 
figures  released  yesterday  by 
the  federal  statistics  office. 

A mild  winter  and  a differ- 
ence in  the  number  of  work- 
ing days  contributed  to  the 
marked  contrast  between  the 
two  quarters.  In  addition,  a 
one  percentage  point  rise  in 
value  added  tax  from  April  1 
this  year  encouraged  spend- 
ing in  the  first  quarter.  As  a 
result,  private  consumption 
growth  slowed  sharply  from 
a year-on-year  rate  of  1.9  per 
cent  in  the  first  quarter  to 
0.4  per  cent  in  the  second. 

Other  sectors  also  slowed, 
although  government  spend- 
ing was  0.6  per  cent  higher 
in  the  second  quarter  than  a 
year  before,  compared  with 
o.l  per  cent  in  the  first  quar- 
ter. In  the  building  sector,  a 
2.7  per  cent  rise  in  the  first 


German*  J 7 

flop)  6DP  erow&taaal  -%  clangs). 

d • 7^'  'A 


quarter  was  followed  by  a 
decline  of  7.4  per  cent  in  the 
second  quarter  year  on  year. 

GDP  in  western  Germany 
grew  by  L8  per  cent,  down 
freon  4 3 per  cent  in  the  first 
quarter,  while  economic 
growth  in  the  eastern  part 
stagnated  after  growth  of  a£ 
per  cent  In  the  first  three 
months  this  year. 

However.  Mr  Kohl's  cabi- 
net - meeting  for  the  last 
time  before  the  election  - 
expressed  optimism  about 
the  outlook.  GQnther 
Rexrodt,  economics  minister, 
said  the  first  two  quarters  of 
this  year  should  be  taken 
together. 

He  expected  Germany's 
GDP  to  grow  by  23  per  cent 
hi  the  full  year. 

However.  analysts 
remained  sceptical.  “We  do 
not  expect  to  see  an  accelera- 
tion of  growth  in  the  second 
half.”  said  Lothat  Hessler, 
analyst  at  HSBC  Trinkaus. 


Paris  at 
ease  with 
economic 
turmoil 

By  Darid  Buchan  ta  Paris 


France’s  Socialist  govern- 
ment predicted  yesterday 
that  growth  in  the  euro-zone 
would  help  the  economy, 
overcome  international  mar- 
ket turbulence,  estimating 
that  its  domestic  product 
would  rise  2.7  per  cent  next 
year. 

The  forecast  came  as  Dom- 
inique Strauss-Kahn,  finance 
minister,  presented  what  he 
termed  a “prudent  and  real- 
istic" 1999  draft  budget  to 
parliament. 

The  main  tax  and  spend- 
ing details  of  next  year’s 
budget  plan  were  announced 
in  July.  But  after  the  instar 
bilily  in  Asia  and  Russia, 
yesterday's  announcement 
was  keenly  awaited  to  see 
whether  the  government 
would  recast  its  macroeco- 
nomic assumptions. 

Mr  Strauss-Kahn  raised 
his  estimate  for  1998  growth 
fractionally  from  3 to  3.1  per 
cent,  based  - on  booming 
domestic  household  con- 
sumption and  investment. 

He  shaved  a tenth  of  a 
point  off  his  previous  1999 
growth  estimate  of  2JJ  per 
cent  to  reflect  slackening 
foreign  demand  for  French 
goods  and  suggested  that  his 
original  under-estimate  of 
this  year’s  expansion  lent 
credence  to  the  “prudent” 
character  of  his  1999  fore- 
cast. 

“We  will  hit  2.7  per  cent, 
and  perhaps  more  besides," 
he  said  as  he  left  parliament 

The  Gaullist  opposition 
accused  Mr  Strauss-Kahn  of 
presenting  a budget  that 
ignored  the  storms  gathering 
around  France  and  Europe. 

Presiding  over  the  cabinet 
meeting  that  yesterday 
endorsed  the  budget  plan, 
Jacques  Chirac,  the  Gaullist 
president,  castigated  the 
government  for  not  having 
used  this  year's  good  growth 
to  cut  taxes  and  public 
spending  further. 

Mr  Strauss-Kahn  was  also 
criticised  by  MPs  from  his 
Communist  and  Green  coali- 
tion allies  for  doing  loo 
much  for  business  and  too 
little  for  the  needy. 

The  budget  plan  steers  a 
middle  political  line,  cutting 
one  of  the  payroll  taxes  for 
companies  but  also  raising 
the  wealth  levy  and  pruning 
value  added  tax. 

Buoyant  tax  receipts  are 
planned  to  push  this  year's 
public  deficit  down  to  per 
cent  and  to  2.3  per  cent  nest 
year.  In  response  to  criticism 
that  France  is  taking  too  lei- 
surely an  attitude  to  deficit 
reduction,  the  Finance  Min- 
istry  notod  that  next  year 
should  see  the  French  bud- 
get in  “primary  surplus”, 
excluding  debt  service,  for 
the  first  time  since  199L 


Schroder 
in  subtle 
shift  of 
emphasis 

By  Peter  Norma)  in  Munich 


For  months  the  Blairite  or 
Clintonesque  vision  of  a 
“new  centre"  in  German  pol- 
itics was  the  trade  mark  of 
Gerhard  Schroder’s  cam- 
paign to  displace  Helmut 
Kohl  as  chancellor. 

But  with  the  September  27 
general  election  less  than 
three  weeks  away  and  the 
Bavarian  state  election  next 
Sunday,  the  phrase  has  sud- 
denly disappeared  from  the 
speeches  that  the  opposition 
Social  Democratic  challenger 
is  giving  to  enthusiastic 
crowds  in  Germany. 

The  shift  in  rhetoric  has 
left  Mr  Scbrfider  sounding 
rather  like  Oskar  Lafon- 
taine,  the  SPD’s  left-leaning 
leader.  It  has  frieDed  specula- 
tion that  the  candidate  is 
anticipating  a leftist  major- 
ity of  SPD  and  environmen- 
tal Green  MPs  in  the  Bund- 
estag. the  lower  house  of 
parliament. 

Yesterday,  the  campaign 
team  of  Just  Stofimaru  the 
non-party  entrepreneur  cho- 
sen by  Mr  Schroder  to  be 
economics  minister,  said  he 
was  very  unlikely  to  give 
further  interviews  or  make 
public  appearances  before 
the  poll.  The  news  added  to 
the  impression  of  the  SPD 
dosing  ranks.  . 

An  estimated  15,000  people 
in  Nuremberg  and  12,000  in 
Munich  this  week  heard 
much  about  the  need  to 
restore  social  justice  after  16 
years  of  Mr  Kohl's  govern- 
ment. They  heard  considera- 
bly less  about  a broad  part- 
nership involving  all  levels 
of  society  to  build  prosper- 
ity. However,  Mr  Schroder 
has  denied  prejudging  the 
election  result  or  deserting 
the  centre  ground. 

Talking  on  the  train 
between  Nuremberg  and 
Munich,  he  maintained  that 
soda!  justice  had  been  cen- 
tral to  his  political  message 
since  Ills  successful  cam- 
paign to  be  re-elected  as 
prime  minister  of  Lower  Sax- 
ony early  this  year. 

Social  justice  was  also 
essential  for  economic  suc- 
cess. alongside  priorities 
such  as  technological  inno- 
vation, fhir  taxation  and  a 
fair  division  of  the  fruits  of 
industry  between  employers 
and  employees.  .The  eco- 
nomic crises  in  . Asia  and 
Russia,  characterised  by 
huge  disparities  in  wealth 
between  rich  and  poor,  con- 
firmed his.  vision  of  an 
improved  “stakeholder"  soci- 
ety for  Germany 

There  was  also  a'practical 
reason  for  the  eclipse  of  the 
"new  centre*’.  Mr  Schroder's 
public  appearances  to  Sep- 
tember 27  are  mainly  to 
mobilise  SPD  party  members 
and  sympathisers  for  whom 
the-phrase  was  too  vague. 


(y  \jS/^ 


★ 


EUROPE 


Spanish  ex-minister 


heads  for  jail 


By  Darid  White  in  Madrid 


Spain's  longest-serving 
interior  minister  since  the 
end  of  the  Franco  dictator- 
ship 23  years  ago  was  yester- 
day preparing  to  be  escorted 
to  jail  by  members  of  his  for- 
mer department,  in  the 
midst  of  a bitter  political 
row  over  his  conviction. 

Jos6  Barrionuevo,  who 
held  the  post  in  a Socialist 
cabinet  from  1982  to  1988, 
and  Rafael  Vera,  his  former 
national  security  chief,  were 
ordered  by  the  Supreme 
Court  late  on  Tuesday  to 
begin  serving  their  10-year 
sentences.  They  were  con- 
victed on  kidnapping  and 


misappropriation  charges  In 
a case  over  covert  counter- 
terrorist  reprisals  during 
their  time  at  the  Interior 
Ministry. 

It  is  the  first  time  in  mod- 
em Spain  that  a former  gov- 
ernment minister  has  been 
sent  to  jail.  Bamonuevo’s 
seat  in  parliament  will  be 
filled  by  another  Socialist. 
Vera  was  detained  in  prison 
two  years  ago. 

The  Supreme  Court,  in 
deriding  not  to  wait  for  the 
outcome  of  their  appeals  to 
the  constitutional  court, 
brought  to  a bead  weeks  of 
ftSCfllating  f origin n in  which 
Socialist  leaders  have 
claimed  that  the  two  were 


sentenced  unjustly  and  with- 
out proof  of  a 1983  kidnap- 
ping. 

The  kidnap  of  a man  mis- 
takenly Identified  as  a 
Basque  terrorist  living  in 
southern  France  was  the 
first  action  claimed  by  the 
Anti-Terrorist  Liberation 
Groups  (Gal),  subsequently 
blamed  for  some  two  dozen 
killings  In  a campaign 
against  the  Eta  separatist 
organisation. 

The  court  which  reached 
its  majority  verdict  In  July, 
delayed  its  decision  on 
whether  to  jail  the  other  10 
men  convicted  of  the  crime. 
Unlike  Barrionuevo  and 
Vera  the  other  defendants. 


who  are  former  government 

and  party  officials  and 
policemen,  admitted  taking 
part  in  the  kidnap  and  have 
applied  for  government  par- 
dons. Their  sentences  range 
from  two  to  10  years. 

The  court  accepted  the  tes- 
timony of  four  of  the  defen- 
dants against  their  former 
ministry  bosses,  arguing 
that  senior  officials  would 
not  have  ordered  the  kidnap- 
ping without  their  superiors’ 
knowledge  and  approval. 

On  Sunday  the  court's 
chief  magistrate,  Javier  Del- 
gado, defended  the  verdict, 
denying  that  the  court  was 
swayed  by  political  consider- 
ations. The  General  Council 


of  the  Judiciary,  the  govern- 
ing body  of  Spain's  judges, 
also  presided  over  by  Mr  Del- 
gado, rallied  to  his  support 
alter  a ferocious  attack  from 
the  Socialist  party,  which 
accused  him  of  defending 
the  interests  of  the  centre- 
right  Popular  party  govern- 
ment. 

Felipe  Gonzalez,  the  for- 
mer Socialist  prime  minister, 
who  re-enlisted  as  a lawyer 
to  defend  his  former  col- 
leagues, has  insisted  the  sen- 
tence was  politically  based. 

However.  Jose  Barrel],  the 
Socialists'  candidate  for 
prime  minister  in  the  next 
election,  has  tried  to  cool 
down  the  conflict,  arguing 


Barrionuevo:  preparing  for  jafl 


that  the  party  should  look  to 
the  future  rather  than 
become  bogged  down  in  the 
past 


Britain  accused  on  JAT  landing  rights  ban 


By  Ratpb  Atkins  to  Bom, 
Mctiae!  Smith  ei  Brussels  and 
Guy  Dinmore  In  Belgrade 


Germany  accused  Britain 
yesterday  of  undermining 
European  Union  attempts  to 
ease  the  crisis  in  Kosovo, 
after  London  delayed  joining 
a ban  on  landing  rights 
within  the  EU  for  JAT,  the 
Yugoslav  state  airline. 

The  German  Foreign 
Office  claimed  that  London 


bad  "broken  ranks  with  EU 
solidarity"  by  insisting  that 
an  agreement  signed  with 
Yugoslavia  in  1969  meant  it 
had  to  give  12  months' 
notice  before  ceasing  sched- 
uled flights 

The  ministry  warned  that 
the  UK  could  now  face  legal 
action  by  the  European  Com- 
mission in  Brussels. 

Germany  and  Italy  went 
ahead  yesterday  with  the 
ban,  which  was  accepted  by 


EU  foreign  ministers  on  Sun- 
day. 

Austria  also  implemented 
the  ban  after  a JAT  aircraft 
landed  in  Vienna  yesterday 
morning.  Lawyers  believe 
that  the  ban  is  legitimate 
under  international  law  and 
can  supplant  bilateral  agree- 
ments. 

The  ban  was  agreed,  in 
tandem  with  the  US,  in  June 
when  Britain  held  the  EU 
presidency,  but  was  held  up 


by  objections  from  Greece, 
as  well  as  the  UK. 

The  ban  on  JAT  flights  is 
intended  as  a reprisal  for 
Belgrade's  repressive  poli- 
cies in  the  province  of  Kos- 
ovo. Greece  has  been  politi- 
cally sympathetic  towards 
Yugoslavia,  which  now  com- 
prises only  Serbia  and  Mon- 
tenegro. 

The  German  government, 
clearly  worried  that  the 
force  of  the  ban  would  be 


reduced,  said  the  agreement 
should  be  honoured. 

In  response,  the  UK  said  it 
had  implemented  the  JAT 
ban  in  line  with  its  legal 
obligations.  New  bookings 
for  JAT  charter  flights  to 
Britain  have  been  blocked 
with  immediate  effect 

As  well  as  facing  a prohi- 
bition on  flights  to  European 
destinations,  JAT  said  it 
would  be  stopping  direct 
flights  to  Sweden. 


But  the  carrier  indicated  it 
would  now  seek  to  re-route 
flights  via  London. 

Meanwhile,  European  air- 
lines are  still  flying  as  nor- 
mal to  Belgrade.  Unexpect- 
edly, the  Serbian 
government  derided  not  to 
retaliate  against  European 
airlines.  Diplomats,  however, 
have  quoted  government 
officials  as  saying  Lufthansa, 
the  German  airline,  may  be 
banned. 


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FINANCIAL  TIMES  THURSDAY  SEPTEMBER  1 0.1998 


ASIA-PACIFIC 


INVESTOR  ANGER  LAST-MINUTE  DECISION  TO  EXTEND  DEADLINE  FOR  BANKS  TO  SETTLE_OUTSTANDING  RINGGIT  CONTRACTS 


Banks  snub  Malaysian  currency  tactics 


By  Sheila  McNulty 
In  Kuala  Lumpur 


International  banks 
yesterday  snubbed  Malay- 
sia's last-minute  decision  to 
extend  yesterday's  deadline 
for  them  to  settle  outstand- 
ing ringgit  contracts,  and 
shut  the  door  firmly  on  fur- 
ther financial  dealings  with 
the  country. 

Late  on  Tuesday  night  the 
Malaysian  central  bank  sud- 
denly reversed  last  week's 
decision  that  contracts  in  its 
currency  had  to  be  settled  by 
yesterday,  saying:  “All  out- 
standing contracts  entered 


into  prior  to  1300  hours  qq 
September  1, 1998  can  be  set- 
tled on  their  respective 
maturity  dates." 

But  currency  dealers  said 
investors  were  angry  at  Mal- 
aysia for  abruptly  withdraw- 
ing the  ringgit  from  interna- 
tional financial  markets  to 
“trap"  them  into  settling 
outstanding  positions  at  the 
new  official  rate  of  M33.80  to 
the  US  dollar.  “People 
worked  around  the  clock  to 
meet  it  [yesterday's  dead- 
line}. Chits  have  been  torn 
up.  You  can’t  just  uncancel 
it,"  said  Patricia  Lui,  foreign 
exchange  analyst  at  Techni- 


cal Data  Thomson  Asia,  in 
Singapore,  the  ringgit's  larg- 
est offshore  market 

The  international  banks 
had  agreed  among  them- 
selves to  settle  the  M$25bn 
(TJS$6.6bn)  in  outstanding 
contracts  by  “netting  off" 
obligations  and  converting 
the  difference  into  US  dol- 
lars. 

Analysts  suspect  Malaysia 
hoped  with  its  llth-hour 
change  of  heart  to  under- 
mine the  international 
banks’  agreement  to  settle  at 
MS4.00.  the  ringgit  trading 
rate  when  Malaysia 
announced  sweeping  cur- 


rency controls.  When  Malay- 
sia imposed  controls  Last 
week,  it  counted  on  repatria- 
tion of  those  funds  by  yester- 
day's deadline  to  shore  up  a 
liquidity  shortage  in  its  over- 
extended banking  system. 

Bankers  said  Malaysia 
would  have  difficulty  con- 
vincing international  banks 
to  do  any  business  with  it, 
particularly  at  MS3.B0  when, 
given  the  political  and  eco- 
nomic uncertainty  created 
over  the  past  week,  the  ring- 
git would  probably  be  trad- 
ing closer  to  MS5  to  the  US 
dollar,  or  even  M$&  “People 
have  no  interest  in  sitting 


around  in  this  currency," 
said  a dealer  in  Singapore. 
"People  are  just  happy  to 
watk  out  of  Malaysia  and 
never  deal  with  them  again." 

Mann  Bhaskaran.  manag- 
ing director  of  S.G.  Securi- 
ties in  Singapore,  said  the 
end  to  offshore  trade  In  Mal- 
aysia's currency  and  shares 
would  be  “a  major  drag"  on 
Singapore’s  financial  and 
business  sector,  which 
accounts  for  28  per  cent  of 
gross  domestic  product 

"Malaysia's  drastic  mea- 
sures compound  the  deter- 
iorating global  environment 
for  Singapore.”  Mr  Manu 


said.  “The  island  could  lose 
oat  in  the  worsening  bilat- 
eral relations  with  Malaysia 
and.  longer-term,  have  its 
role  as  regional  nodal  point 
for  trade  and  financial  flows 

imdorminprt  ** 

But  analysts  said  Singa- 
pore had  elevated  its  posi- 
tion as  a regional  financial 
centre  by  liberalising  while 
even  Hong  Kong  became 
Interventionist.  “When 
recovery  comes,  Singapore 
will  emerge  as  the  undis- 
puted financial  centre  of  the 
region."  said  Kostas  Pana- 
giotou,  senior  economist  at 
Kim  Eng  Securities. 


Kuala  Lumpur  orders  increase  in  lending 


By  Sheila  McNulty 
in  Kuala  Lumpur  and 
Edward  Luce  in  London 


Malaysia's  central  bank  said 
yesterday  that  it  would 
require  commercial  banks  to 
expand  their  loan  books  at  a 
rate  of  8 per  cent  a year, 
beginning  this  year,  to  stim- 
ulate the  economy. 

The  banks  have  for 
months  resisted  calls  by 
Mahathir  Mohamad,  the 
prime  minister,  to  increase 
lending,  fearing  it  would  add 
to  their  non-performing 
loans.  Economists  predict 
non-performing  loans  will 


account  for  up  to  30  per  cent 
of  all  loans  at  the  peak  of  the 
financial  crisis,  which  is 
expected  next  year.  But  the 
central  bank  said  two  gov- 
ernment agencies  had  been 
created  to  buy  non-perform- 
ing loans  and  recapitalise 
banks,  which  should  ease 
fears  of  adding  to  the  prob- 
lem. 

Yesterday’s  measure  bol- 
sters moves  by  the  central 
bank  last  week,  when  Dr 
Mahathir  imposed  sweeping 
capital  controls  designed  to 
repatriate  billions  of  ringgit 
and  keep  it  in  the  country. 
Bank  Negara  sharply  cut  the 


amount  of  money  banks 
must  place  with  it  at  no 
interest  and  cut  interest 
rates  to  revive  lending. 

However.  Fitch  IBCA,  the 
credit  rating  agency,  warned 
that  last  week’s  “arbitrary” 
imposition  of  exchange  con- 
trols would  badly  damage 
Malaysia's  creditworthiness. 

The  agency  downgraded 
Malaysia's  rating  to  BB.  two 
notches  below  the  invest- 
ment grade  threshold  of  BBB 
minus.  This  puts  Malaysia’s 
debt  into  “junk  bond"  status 
for  the  first  time  in  more 
than  a decade. 

Fitch  IBCA  said  that  there 


was  little  likelihood  of  Mal- 
aysia defaulting  on  its  exter- 
nal debt  in  the  near  future 
given  its  very  low  debt  ser- 
vice obligations.  Malaysia, 
which  had  been  planning  to 
tap  up  to  $2bn  from  the 
international  bond  markets 
in  the  near  future  to  help 
capitalise  its  domestic  loan 
restructuring  agency,  has 
never  issued  a sovereign 
bond.  “We  are  in  no  doubt 
about  Malaysia’s  ability  to 
service  its  debt  It  is  a ques- 
tion of  its  willingness  to  do 
so,"  said  Paul  Hawkins  from 
Fitch  IBCA  in  London.  “If 
Malaysia  can  change  rules  in 


an  arbitrary  fashion  once,  it 
can  do  so  again.” 

Before  yesterday's  mea- 
sures. restrictions  on  prop- 
erty leading  in  Malaysia  bad 
already  been  eased  and  there 
were  plans  to  relax  controls 
on  the  equity  market  The 
curbs  were  instituted  last 
year  to  divert  lending  to  pro- 
ductive sectors  in  the  hope 
of  limiting  the  decline  in 
asset  prices. 

But  economists  say  pro- 
ductive sectors  such  as  man- 
ufacturing  cannot  pull  the 
economy  out  of  recession, 
given  that  about  55  per  cent 
of  its  exports  are  to  Asia. 


which  is  embroiled  in  crisis. 

Song  Seng  Wun,  regional 
economist  at  G.K.  Gob 
Research,  said  loan  growth 
in  July,  the  last  month 
reported,  was  8.8  per  cent, 
but  it  has  been  dropping 
about  two  percentage  points 
every  month.  The  economy 
contracted  6.8  per  cent  in  the 
second  quarter. 

If  hanks  do  not  meet  the 
minimum  growth  rate  in 
loans  they  will  be  asked  to 
“provide  acceptable  justifica- 
tion to  Bank  Negara",  the 
central  bank  said,  without 
indicating  the  sanctions 
envisaged. 


Financial  crisis  re-ignites  old 


tensions  with  Singapore 


KL’s  curbs  on  the 
markets  hit  at  the 
heart  of  the 
city-state,  writes 

Sheila  McNulty 


Tanjong  Pagar  railway 
station,  with  its  tile 
mosaics  of  a boy  tending 
cattle,  rubber  tappers  and 
Chinese  junks,  speaks  of 
another  age.  It  was  built  in 
Singapore  in  1932  but 
belongs  to  Malaysia,  under 
an  agreement  reached  when 
neighbouring  Malaysia  and 
Singapore  were  linked  under 
British  rule. 

But  today  it  is  out  of  place 
amid  the  skyscrapers  built 
around  it  over  the  decades, 
and  the  city-state  of  Singa- 
pore wants  to  shut  it  down. 
Malaysia  refuses. 

The  ensuing  confrontation 
has  turned  Tanjong  Pagar 
into  a monument  to  the 
long-standing  rivalry 
between  the  two  countries, 
intensified  by  the  financial 
crisis  that  has  undermined 
the  co-operation  between 
them  nurtured  by  years  of 
prosperity  and  optimism. 

Now  Malaysia  has  upped 
the  stakes.  It  has  imposed 
sweeping  capital  controls 
that  strike  directly  at  the 
heart  of  Singapore's  all-im- 
portant financial  centre. 


Last  week  the  government 
in  Kuala  Lumpur  barred  off- 
shore trading  of  Malaysian 
shares  and  withdrew  its  cur- 
rency from  international 
trade  to  insulate  the  econ- 
omy from  volatile  global 
financial  markets. 

It  was  a severe  blow  to 
Singapore’s  financial  mar- 
kets where  trade  in  Malay- 
sian shares  constitutes  about 
80  per  cent  of  the  business 
on  the  Stock  Exchange  of 
Singapore’s  over-the-counter 
market. 

And  Singapore  banks  have 
been  rushing  to  clear  bil- 
lions of  ringgit  in  transac- 
tions made  in  its  thriving 
foreign-exchange  market 

“In  the  process  of  [Malay- 
sia] taking  control  of  fits] 
economy,  the  biggest  casu- 
alty is  Singapore."  says  Song 
Seng  Wun,  economist  at  GK 
Goh  Research. 

Malaysians  are  simply  fed 
up.  They  are  angry  about  the 
pressure  placed  on  the  ring- 
git by  an  outflow  of  funds  to 
Singapore  banks  offering 
higher  rates  for  ringgit 
deposits. 

Some  Malaysians  want  an 
end  to  new  bilateral  ties. 
Many  want  the  government 
to  punish  Singapore  for  the 
row  over  the  railway  station 
by  pulling  out  of  the  pact  by 
which  Singapore  buys  more 
than  half  its  water  from  Mal- 


aysia. 

At  the  same  time  Malaysia 
is  threatening  to  seek  total 
control  of  airspace  it  has 
shared  with  Singapore  for 
decades  and  require  all 
exports  to  pass  through  Mal- 
aysia shipping  ports,  instead 
of  Singapore’s  bigger  and 
more  efficient  one. 

Singapore  says  it  would  go 
to  the  World  Trade  Organi- 
sation if  Malaysia  did  that. 

They  point  out  that  they 
pay  for  their  water,  which  in 
turn  helps  Malaysia,  as  does 
providing  trade,  tourist  dol- 
lars and  support  for  Malay- 
sia’s property  market 

“We  are  not  to  be  taken 
for  granted."  wrote  army 
reservist  Chang  Chern  Yuen 
in  one  of  the  many  letters  in 
Singapore  newspapers.  “I  am 
prepared  to  defend  and  die 
for  Singapore." 

Feuds  began  flaring 
between  the  neighbours 
after  they  gained  indepen- 
dence from  Britain.  Singa- 
pore was  brought  into  Mal- 
aysia in  1963  in  an  attempt 
to  form  a Malaysian  Federa- 
tion but  was  forced  out  two 
years  later. 

Although  there  are  differ- 
ent versions  as  to  why  it  did 
not  work,  many  cite  fears 
that  the  smaller  ethnic  Chi- 
nese majority  in  Singapore 
might  gain  control  over  the 
larger  ethnic  Malay  majority 


A Malaysian  family  waits  for  a train  at  the  tfisputed  Tanjor  Pagar  station 


of  Malaysia. 

The  memoirs  of  Lee  Kuan 
Yew,  Singapore's  senior  min- 
ister, due  out  this  month, 
are  believed  to  contain  refer- 
ences to  Singapore’s  separa- 
tion that  are  expected  to 
stoke  the  conflict. 

Just  over  a year  ago  Mr 
Lee  provoked  Malaysian  out- 
rage when  in  a court  docu- 
ment he  described  Malay- 
sia's border  town  of  Johor 
Baru  as  notorious  “for  shoot- 
ings, muggings  and  car  jack- 
ings".  He  later  apologised 
and  tensions  eased.  Those 
were  stOl  prosperous  times. 


Now.  however,  Mahathir 
Mohamad.  Malaysia's  prime 
minister,  has  seized  on  ten- 
sions with  Singapore  as  a 
rallying  point  to  shore  up 
support  On  a recent  trip  to 
Johor  Bare  he  said:  “We  do 
not  have  a big  army  to 
attack  anyone.  We  have 
tried  to  be  good  neighbours. 
But  don't  take  us  for 
granted.” 

He  reminded  Singapore  it 
depended  on  Malaysia  for 
water  - to  a chorus  of  “Cut! 
Cut!  Cut"  from  a crowd  of 
about  10,000. 

Singapore,  too.  is  pressing 


its  case.  It  has  already 
moved  its  immigration  and 
customs  for  railroad  passen- 
gers away  from  Tanjong 
Pagar  to  a new  station  closer 
to  the  border.  Passengers 
must  now  stop  at  both  sta- 
tion checkpoints. 

Singapore  says  it  outlined 
the  plan  to  move  in  1989  to 
improve  protection  against 
illegal  immigrants  and  drug 
traffickers.  Malaysia  says 
Singapore  simply  wants  to 
drive  it  off  the  valuable  land 
amid  the  crisis  to  put  pres- 
sure on  Malaysia  when  It 
can  least  afford  it 


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India  reinstates  fraud  chief 


By  Mark  Wchoteon  hi  New  Delhi 


The  Indian  government,  led 
by  the  Bharatiya  Janata 
party  (BJP).  yesterday  blush- 
ingly  reinstated  one  of  the 
country's  fraud  investiga- 
tors. after  a sharp  rebuke 
from  the  supreme  court  over 
his  sudden  and  controversial 
transfer  to  a low-key  job  in 
Delhi  three  weeks  earlier. 

MX  Bezbaruah  was  rein- 
stated as  head  of  the 
Enforcement  Directorate,  the 
government  agency  that 
investigates  and  prosecutes 


financial  crimes,  a day  alter 
judges  said  the  government 
had  "misquoted"  and  fudged 
earlier  court  rulings  on 
transfers  of  senior  officials. 

Mr  Bezbaruah  was  shifted 
to  the  job  of  transport  com- 
missioner in  Delhi  on 
August  13,  with  the  govern- 
ment at  the  time  stressing 
the  pressing  need  for  a “com- 
petent" official  in  the  post. 
The  government  announced 
his  reappointment  yesterday 
without  comment,  but  his 
reinstatement  is  a political 
embarrassment. 


His  move  had  instantly 
raised  media  and  political 
criticism,  with  reports  that 
Mr  Bezbaruah  was  responsi- 
ble for  overseeing  up  to  four 
cases  of  alleged  foreign 
exchange  fraud  involving  J. 
Jayalalitha,  leader  of  a south 
Indian  party  whose  support 
is  critical  to  the  survival  of 
the  BJP-Ied  coalition. 

BJP  leaders  have  denied 
any  link  between  Mr  Bezba- 
ruah and  their  difficulties 
with  Ms  Jayalalitha,  who 
faces  a series  of  corruption 
charges. 


New  Indonesian  protests 
send  currency  sliding 


By  Sander  Thoenes  In  Jakarta 


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Indonesia's  rupiah  lost  part 
of  its  recent  recovery  yester- 
day as  investors  took  fright 
from  a rerival  of  riots  and 
student  protests,  fuelled  by' 
spiralling  poverty  and  unem- 
ployment 

The  rupiah  hit  Rpi2^00  to 
the  US  dollar  before  ending 
around  RpllBOO.  still  down 
sharply  from  Rpl0,800  at  the 
start  of  this  week.  The  rup- 
iah edged  close  to  Rpl0.500 
last  week  and  traders  had 
talked  of  testing  the  Rpl(UOO 
level,  a sharp  recovery  from 
a low  of  Rpl6.000  in  June. 

The  fall  in  part  reflected  a 
rally  in  the  dollar  hut  was 
also  a response  to  reports 
that  thousands  of  people 
looted  food  warehouses  in 
West  Kalimantan,  part  of 
Borneo,  while  students 
clashed  with  police  in  Sura- 


baya. The  localised  looting, 
riots  and  protests  have  re- 
kindled fears  of  political 
upheaval  similar  to  the  vio- 
lence that  toppled  former 
president  Suharto  in  May. 

Students  broke  Into  parlia- 
ment on  Monday  and  a few 
hundred  protesters  tussled 
yesterday  with  police  in 
Surabaya,  the  country's  sec- 
ond city,  just  as  President 
BJ.  Habibie  opened  a sports 
stadium  nearby.  Protesters 
demanded  the  resignation  of 
Mr  Habibie  and  a lowering  of 
food  prices. 

Mr  Habibie  urged  them  to 
be  patient,  warning  that 
their  rallies  only  exacer- 
bated the  country's  woes.  “If 
the  crisis  is  not  soon  over- 
come. it  is  not  impossible 
that  it  can  threaten  our 
nation's  unity  that  we  have 
built  up  with  difficulty." 

The  currency  had  started 


to  stabilise  as  Mr  Habibie 
defied  sceptics  by  gaining 
support  both  among  the 
Local  elite  and  among  foreign 
donors,  such  as  the  Interna- 
tional Monetary  Fund.  A 
steady  reduction  of  imports 
and  virtual  cessation  of  cor- 
porate debt  payments,  also 
cut  demand  for  dollars  on 
the  local  currency  market. 

But  the  economy  kept  slid- 
ing and  Inflation  raged,  nota- 
bly in  food  prices.  Misman- 
agement and  corruption  has 
hampered  government 
efforts  to  provide  subsidised 
food  to  the  poor,  leading  offi- 
cials to  phase  out  most  sub- 
sidies earlier  this  week  and 
avert  a budget  problem. 

The  price  of  a kilogram  of 
rice  is  now  dose  to  a factory 
worker’s  daily  wage,  and 
more  than  half  of  the  popula- 
tion is  either  unemployed  or 
under-employed. 


BANK  OF  JAPAN  MONETARY  POLICY  EASED 


Central  bank 
decides  to  set 


pace  in  Japan 


By  GMan  Tett  hi  Tokyo 


The  markets  have  got  used 
to  Japan's  policymakers  fol- 
lowing in  their  wake  this 
summer.  The  economy  has 
worsened  rapidly,  but  the 
government  has  produced  its 
policies  painfully  slowly. 

Yesterday,  however,  the 
Bank  of  Japan's  policy  board 
caught  analysts  on  the  hop 
by  announcing  after  a day- 
long meeting  it  had  decided 
to  ease  monetary  policy  by 
guiding  down  the  overnight 
call  rate  and  expanding  the 
money  supply, 

“This  is  totally  surpris- 
ing,” said  Norihiko  Noshino, 
of  Nomura  Securities.  “We 
will  have  to  see  how  the 
equity  market  reacts  from 
here." 

From  an  economic  per- 
spective the  decision  may 
not  be  dramatic.  Indeed, 
even  the  hank  itself  is  doubt- 
ful whether  cutting  the  cost 
of  money  will  belp  boost  tbe 
“real"  economy  signifi- 
cantly. 

Interest  rates  have  been 
stuck  at  record  lows  of  0.5 
per  cent  for  tbe  last  three 
years,  but  tbe  economy  has 
still  tumbled  into  its 
worst  recession  for  half  a 
century. 

Japanese  savers  are  so 
nervous  about  the  future 
that  they  seem  to  have  little 
incentive  to  borrow  more 
cash,  however  cheap.  And 
the  weak  state  of  Japan’s 
financial  sector  means  the 
banks  are  now  reluctant  to 
lend  money  on  to  corporate 
customers,  even  at  a reduced 
cost 

Consequently  the  measure 
of  “broad  money”  - which 
includes  hank  landing  - has 
been  growing  by  less  than  4 
per  cent  a year  in  recent 
months  even  though  the  cen- 
tral hank  has  been  pumping 
liquidity  into  the  system.  As 
Susumu  Rato,  chief  econo- 
mist at  Barclays,  said:  “It  is 
a big  question  whether  this 


will  really  ease  the  credit 
crunch." 

The  real  significance  of 
the  move  may  be  psychologi- 
cal. The  announcement  sug- 
gests some  officials  are 
becoming  more  realistic  In 
recognising  the  depth  of 
Japan’s  economic  problems 
- and  more  resolute  in  tack- 
ling them. 

“Sense  has  prevailed,"  said 
Chris  Calderwood  of  Jardine 
Fleming.  “Just  the  signal 
that  the  bank  will  do  its  bit 
is  to  be  lauded.” 

Quite  why  the  bank’s  pol- 
icy' board  took  the  decision 
will  not  be  known  for  six 
weeks,  when  the  meeting’s 
minutes  are  published.  But 
the  bank  has  grown  increas- 
ingly alarmed  that  the  gov- 
ernment’s Yl6,700bn 
(Si26bn)  stimulus  package 
will  not  be  enough  to  boost 
tbe  economy. 

Concera  about  the  finan- 
cial sector  has  risen  too, 
With  the  September  30  fiscal 
half-year  deadline  approach- 
ing, many  banks  are  now 
scrambling  to  raise  funds 
and  finding  that  the  cost  of 
borrowing  is  rising  sharply- 

There  has  also  been  a sub- 
tle shift  - and  split  - in  for- 
eign exchange  policy.  Senior 
officials  at  the  Ministry  of 
Finance  have  insisted 
recently  that  they  wished  to 
see  a stronger  yen.  But  some 
key  officials  at  the  bank 
have  quietly  concluded  that 
a weaker  yen  may  be  needed 
to  boost  growth. 

Though  tbe  central  bank 
has  tried  to  implement  poli- 
cies to  tackle  the  banking 
crisis,  it  has  been  prevented 
from  doing  so  by  political 
deadlock 

Monetary  policy  is  one 
area  where  it  has  clear  con- 
trol. “The  bank  cannot  do 
much  [to  help],  but  this  is 
one  of  the  few  things  it  can 
do,"  said  one  Japanese 
banker.  “Maybe  it  hopes  pol- 
iticians will  treat  this  fast 
decision  as  a good  example.” 


NEWS  DIGEST 


TUNG  COMPLIMENTED  ON  SUCCESS 


Patten  backs  Hong  Kong  in  4 
fight  to  keep  currency  peg 


Chris  Patten.  Hong  Kong's  last  colonial  governor, 
yesterday  came  out  strongly  In  support  of  the  territory  In 
its  battle  to  maintain  its  currency’s  peg  to  the  US  dollar.  ‘ 
The  new  government  “will  continue  to  defend  the  peg  and 
will  do  so  successfully",  he  told  the  Royal  Institute  of  Inter- 
national Affairs. 

A run  on  the  currency  was  his  biggest  worry  as  governor 
and  that  must  be  even  more  true  for  his  successor.  Tung 
Chee-hwa,  he  said.  He  complimented  Mr  Tung  on  his  suc- 
cess in  maintaining  political  consensus  in  favour  of  the 
arrangement  despite  the  intense  pressure  on  the  economy. 

But  Mr  Patten,  who  warns  in  East  and  Wa$t,  his  latest ' 
book,  that  Hong  Kong’s  attraction  as  a financial  centre 
depends  on  the  integrity  of  its  markets,  was  more  cautious 
about  the  government’s  recent  intervention  in  the  equity  . 
market 

Some  critics  have  accused  the  government  of  turning  its 
back  on  free-maiket  principles  but  Mr  Patten  said  he  pre- 
ferred to  see  them  as  a short-term  tactic  to  deal  with  a 
short-term  problem.  Tm  sure  we  haven’t  seen  a long-term 
change  in  strategy,”  he  said.  Peter  Montagnort,  London 


NORTH  KOREA  MISSILE 


Japan  presses  for  UN  action 


Japan  was  yesterday  pressing  the  United  Nations  Security 
Council  to  take  action  following  North  Korea's  launch  last 
week  of  what  Tokyo  says  was  a ballistic  missile  that  over- 
flew Japan.  ... 

Diplomats  said  the  likely  outcome  of  Japan’s  efforts  to 
censure  North  Korea  would  be  a presidential  statement  of 
condemnation.  The  statement  would  be  issued  even  if 
North  Korea  had  fired  a satellite,  as  it  claims,  because  it 
did  so  without  advance  warning,  over  smother  country  and 
presented  a hazard  to  safety  and  transport,  said  diplo- 
mats. 

Only  China  supports  North  Korea’s  claims,  while  diplo- 
mats raid  other  members  of  the  15-nation  Council  were 
“scepbcaT  that  the  alleged  satellite  was  anything  but  a 
missile. 

South  Korea  and  the  US  say  they  have  been  unable  to 
detect  any  transmissions  from  the  “singing  satellite" 
Pyongyang  claims  is  broadcasting  “immortal  revolutionary 
hymns”  in  Morse  code.  Laura  Stiber.  New  York,  Michiyo 
Nakamoto,  Tokyo  and  agencies 


IMF  AND  PHILIPPINES 


Revised  credit  terms  agreed 


The  International  Monetary  Fund  and  toe  Philippines  have 
reached  agreement  on  a revised  economic  programme  for 
the  country.  The  agreement  was  part  of  a revision  of  toms 
of  a $1  -35bn  standby  facility  originally  agreed  last  March 
and  secs  out  new  economic  targets  far  the  Philippines. 

In  a joint  statement,  the  IMF  and  the  Philippines  centra! 
bank  said  that  as  a result  of  a drought  in  the  country  and 
toe  continued  turfculence’in  global  markets,  economic 
growth  in  1998  was  expected  to  be  lower  than  expected  in 
March  but  still  positive  and  inflation  sHghtiy  higher  than 
expected. 

Among  toe  key  targets  agreed  between  toe  IMF  and  toe 
Philippine  government  was  a budget  deficit  of  1.4  per  cent 
In  1998  and  0.6  per  cent  in  1999.  The  central  bank  said  it 
planned  to  draw  down  $2B0mn  of  the  standby  facility  after 
the  IMF  board  cleared  the  revised  terms  in  October.  It  also 
planned  to  drawn  down  $1bn  from  loans  from  multilateral 
agencies.  Tony  TasseU,  Manila 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


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INTERNATIONAL 


PC  sales  show  strong  global  growth 


By  Pad  Taytor  In  London 

Worldwide  personal 
computer  sales  show  solid 
growth  during  the  current 
quarter  despite  economic 
problems  in  Asia  and  finan- 
cial crisis  in  Russia,  accord- 
ing to  figures  yesterday  from 
International  Data  Corpora- 
tion. 

The  US-based  market 
research  firm  said  PC  ship- 
ments were  set  to  grow  by  11 
per  cent  in  the  third  quarter 


reflecting  “a  wanning  of  the 
market  overall". 

IDC's  estimates  confirm 
comments  by  semes'  indus- 
try executives  meeting  in 
Paris  this  week  who  said 
western  Europe  had  become 
the  IT  industry’s  strongest 
growth  area.  - 

“Europe  is  our  fastest 
growing  area  right  now,” 
said  Scott  McNealy.  chief 
executive  of  Sun  Microsys- 
tems. Earlier  Lew  Platt, 
Hewlett-Packard’s  chief  exec- 


utive, said  that  his  group 
hoped  strength  in  Europe 
would  help  offset  the  col- 
lapse of  much  of  its  business 
in  emerging  markets. 

According  to  the  EDC  esti- 
mates, PC  shipments  will 
grow  by  12L2  per  cent  in  the 
second  half  following  a 9.6 
per  cent  increase  in  the  first 
six  months  of  1998  when 
inventory  problems  in  the 
US  held  back  the  figures. 

“The  inventory  problems 
that  plagued  the  first  half  of 


UN  report  finds  a richer  world 
with  a lot  of  poorer  people 


In  spite  of  rising  living  standards,  study 
says  more  than  Ibn  people  cannot  meet 
basic  needs,  writes  Laura  Silber 


In  spite  of  rising  living 
standards  worldwide,  more 
than  lbn  people  cannot 
meet  even  their  most  basic 
needs,  according  to  a United 
Nations  report  published 
yesterday. 

“If  the  trends  continue 
without  change  - not  redis- 
tributing from  high-income 
to  low-income  consumers, 
not  shifting  from  polluting 
to  cleaner  goods  and  produc- 
tion technologies . . . not 
shifting  priority  from  con- 
sumption for  conspicuous 
display  to  meeting  basic 
needs  - today's  problems  of 
consumption  and  human 
-development  will  worsen." 
warns  the  United  Nations 
Development  Programme. 

Its  ninth  annual  Human 
Development  Report,  which 
is  based  on  statistics  mostly 
from  1995,  also  touches  on 
east  Asia's  economic  prob- 
lems. It  says  the  crisis  has 
caused  the  biggest  setback  to 
human  development  in  the 
past  year,  reversing  eco- 
nomic strides  made  by  the 
region. 

But  the  report  says  the  cri- 
sis provides  an  opportunity 
for  a re-assessment  of  domra- 
tic  and  international  eco- 
nomic strategy  and  proposes 
that  international  agencies 
and  regional  development 
banks  monitor  “human  indi- 
cators as  seriously  as  they 
do  economic  and  financial 


ones”.  “Many  actions  are 
possible  to  protect  people: 
public  employment  schemes, 
food  provision  for  the  vul- 
nerable. credit  allocations 
for  small  businesses  and 
low-income  households  and 
subsidies  for  community 
groups  to  provide  meals  for 
those  thrown  into  poverty." 
it  says. 

The  report  focuses  on 
global  consumption,  urging 
a change  in  consumption 
patterns  to  advance  develop- 
ment. Private  and  public 
consumption  will  reach 
$24,OO0bn  this  year,  twice  the 
level  of  1975  and  six  times 
that  of  1950.  It  says  86  per 
cent  of  expenditures  for  per- 
sonal consumption  - goods, 
services  and  natural 
resources  - were  made  by 
just  20  per  cent  of  the 
world’s  population. 

The  200-page  report  drives 
home  the  vast  disparities  in 
human  development. 

Pollution  and  waste  and 
the  consumption  of  water, 
soil,  forests  and  fish,  are 
now  the  two  biggest  prob- 
lems “nudging  humanity 
towards  the  outer  limits  of 
what  the  earth  can  stand", 
the  report  says. 

“A  child  bom  in  New  York 
City,  Paris  or  Lem  don  today 
will  consume  waste  and  pol- 
lute more  in  a lifetime  than 
as  many  as  50  children  in  a 
developing  country.” 


the  year  have  been  largely 
erased,  and  we  expect  the 
market  to  perform  better  in 
the  next  six  months  with 
improved  demand  for  low- 
cost  and  portable  PCs,"  said 
Bruce  Stephen,  in  charge  of 
IDC’s  worldwide  PC 
research.  “However,  while 
some  market  signals  are  bet- 
ter, IDC  is  still  concerned 
about  the  spread  of  global 
economic  problems  and  the 
attendant  problems  on  PC 
demand." 


Inequality  for  all 


PC  sales  in  western 
Europe  are  expected  to  grow 
by  about  16  per  cent  in  the 
current  quarter  compared 
with  a year  ago.  driven  by 
heightened  interest  in  the 
internet,  low  cast  PCs  and  a 

greater  focus  on  the  region 
by  the  big  PC  brands  like 
Compaq,  Dell  and  Hew- 
lett-Packard. 

US  growth  this  quarter  is 
expected  to  be  around  14  per 
cent,  buoyed  by  the  strength 
of  the  low-cost  PC  market. 


However  sales  in  the  Asia 
Pacific  region  excluding 
Japan,  are  expected  to  fall 

again  by  about  3 per  cent 
following  similar  declines  in 
the  first  two  quarters.  Japa- 
nese PC  shipments,  which 
fen  sharply  earlier  this  year, 
are  expected  to  post  modest 
2 per  cent  growth. 

Among  manufacturers, 
Apple  which  recently  intro- 
duced its  iMac  machine,  is 
expected  to  show  particu- 
larly strong  growth. 


While  industrial  countries 
have  recorded  a 2JS  per  cent 
annual  increase  in  consump- 
tion over  the  past  25  years, 
the  average  African  house- 
hold today  remgiyrras  20  per 
cent  less  over  the  same  time 
period,  it  says. 

The  richest  20  per  cent  of 
the  world’s  people  in  the 
highest-income  countries 
account  for  86  per  cent  of  the 
total  private  consumption 
expenditures  while  the  poor- 
rat  2D  per  cent  consume  just 
1 2 per  cent. 

The  wealthiest  also  con- 
sume 45  per  cent  of  all  the 
meat  and  fish,  while  the 
poorest  20  per  cent  consume 
just  5 percent 

Among  the  4.4bn  people  in 
developing  countries,  almost 
three-fifths  live  in  communi- 
ties lacking  basic  santtflHrw^ 
almost  a third  are  without 
drinking  water,  a quarter  do 
not  have  adequate  housing 
and  a fifth  are  without 
access  to  modern  health  ser- 
vices. 

Canada,  France.  Norway 
and  the  US  ranked  at  the  top 
of  the  Human  Development 
Index,  which  measures  life 
expectancy,  education  and 
literacy,  and  adjusted 
income. 

Among  developing  coun- 
tries, Cyprus  and  Barbados 
rank  first  Of  174  countries, 
those  ranking  lowest  on  the 
HDI  were  Burundi.  Mali, 
Burkina  Faso,  Niger  and 
Sierra  Leone. 

Over  the  past  36  years  life 
expectancy  has  increased  in 
developing  countries  from  46 


Sftwes  of  WOfH  coasump&M  1985  (H  attotaQ 
Total  conatp&m  expenSture 
Cars 
ftper 

Teteptaa  ctmnacttore 
Becttctty 
Total  energy 


rjr: 


— Total  conarapflon  npenSbm 
§£•  kduMriaTcattiitriBs  - 


CotKEnpSaQ  growth 

1905  {TOGO  fan) 

. tariusfaiei  eourtrtw 16j5 

■ Lafri  America  mtf 
: Caribbean  1J 


Eastern  Europe 
.and  CS  OB 

Snflwenutti 
md  Pacific  05 
- Smith  Aston* 

fast  states  03 

Sub-Saharan  Africa  02 


to  62  years.  But  in  Uganda, 
Tamhla  and  Zimbabwe,  HIV/ 
Aids  has  reduced  the  aver- 
age to  less  than  50  years. 

As  a reminder  that  all  are 
not  rich  in  the  rich  coun- 
tries, this  year's  report  intro- 
duces an  index  for  poverty 
in  industrial  countries.  This 
measures  the  extent  of  depri- 
vation. the  proportion  of 
people  excluded  from  prog- 
ress in  longevity,  education 
and  a decent  living  standard. 
It  reveals  that  between  7 and 


17  per  cent  of  their  popula- 
tion is  poor  by  this  defini- 
tion. The  US  ranked  first  in 
average  income,  according  to 
purchasing  power  parity,  but 
registered  the  highest 
human  poverty. 

While  the  report  notes  the 
wide  gap  in  consumption 
patterns.  Gustave  Speth, 
UNDP  administrator,  says: 
“We  are  not  taking  an 
ascetic,  hair-shirt  approach 
to  consumption.  Consump- 
tion growth  has  been  of 


enormous  benefit  to  the 
people  of  the  world.  Literacy 
has  gone  up,  infant  mortal- 
ity has  come  down,  life 
expectancy  has  increased. 
More  people  than  ever  before 
in  history  are  leading  richer, 
more  fulfilling  and  certainly 
more  comfortable  lives. 

“But  despite  the  fact  that 
there  has  been  this  enor- 
mous surge  in  consumption, 
not  everybody  has  been 
invited  to  the  party,"  he 
said. 


NEWS  DIGEST 


HAZARDOUS  CHEMICALS 

International  treaty  will 
impose  trade  controls 

Ministers  and  top  officials  from  nearly  100  countries  meet 
in  Rotterdam  today  to  sign  an  international  treaty  that  will 
ban  the  import  of  hazardous  chemicals  unless  agreed  by 
the  importing  country. 

The  United  Nations  convention  on  hazardous  chemicals 
and  pesticides,  agreed  by  governments  Iasi  March,  will 
make  mandatory  the  existing  voluntary  procedure  of  Poor 
Informed  Consent,  now  used  by  more  than  150  nations. 

The  UN  Environment  Programme  and  the  UN's  Food 
and  Agriculture  Organisation,  the  treaty  sponsors,  say  it 
will  protect  millions  of  farmers,  workers  and  consumers  tn 
developing  countries  and  reduce  threats  to  the  environ- 
ment. The  treaty  sets  up  trade  controls  and  information 
exchange  procedures  that  will  enable  governments  to  pro- 
hibit Imports  of  chemicals  they  cannot  safely  manage  and 
wilt  requite  exporting  companies  to  provide  extensive 
information  on  the  chemical  s potential  health  and  environ- 
mental dangers. 

At  the  outset  the  convention  will  cover  22  pesticides, 
among  them  aklrin,  DDT  and  lindane,  and  five  industrial 
chemicals.  Some  of  these  substances  are  already  banned 
in  the  west  but  are  still  exported  to  developing  countries. 
Many  more  chemicals  are  likely  to  be  added.  Frances  Wil- 
liams, Geneva 

MIDDLE  EAST 

US  envoy  to  hold  talks 

Dennis  Ross.  US  Middle  East  envoy,  yesterday  returned  to 
the  region  in  a bid  to  break  the  1 8-month  deadlock  in  the 
Israeli- Palestinian  peace  negotiations.  He  was  due  last 
night  to  hold  talks  with  Yassir  Arafat,  president  of  the  Pal- 
estinian Authority,  and  later  today  with  Benjamin  Netan- 
yahu, Israeli  prime  minister  who  yesterday  postponed  his 
visit  to  Georgia  because  of  mild  flu. 

Some  coalition  partners  have  threatened  to  pull  out  of 
the  government  if  Mr  Netanyahu  accepts  a US  proposal  to 
hand  over  13  per  cent  of  West  Bank  land  to  the  Palestin- 
ians. Mr  Arafat  has  already  accepted  the  US  plan  while 
Israel  has  insisted  that  of  the  13  per  cent.  3 per  cent  be 
held  in  a nature  reserve  but  under  Israeli  security  arrange- 
ments. Judy  Dempsey,  Jerusalem 


IRAQ  SANCTIONS 

UN  urged  to  switch  tack 

The  US  and  Britain  last  night  were  pressing  the  Security 
Council  to  adopt  a resolution  which  would  suspend  sanc- 
tions reviews  on  Iraq  while  introducing  a comprehensive 
review  of  policy  towards  Baghdad.  The  review,  said  west- 
ern diplomats,  would  be  a "carrot"  - he  writing  of  a “clear 
road  map”  directing  Iraq  how  to  secure  lifting  of  sanctions 
if  it  renews  co-operation  with  UN  weapons  inspectors. 

But,  according  to  diplomats,  a "stick"  is  also  contained 
in  the  resolution.  If  Iraq  refuses  to  work  with  the  UN  mis- 
sion responsible  for  dismantling  Baghdad's  arsenal  of 
deadly  weapons,  then  sanctions  review’s  would  be 
suspended  indefinitely.  The  UN  imposed  sweeping  sanc- 
tions. including  an  oil  embargo,  after  Iraq  invaded  Kuwait 
in  August,  1990.  Laura  Silber,  New  York 


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KSREINAIR  BEYOND  YOUR  iMACINAi  ION 


FINANCIAL  TIMES  ' THURSDAY  SEPTEMBER  10  1998 


THE  AMERICAS 


CURRENCY  CRISES  US  DEPUTY  TREASURY  SECRETARY  SPEAKS  OUT  AGAINST  WITHDRAWING  FROM  GLOBAL  SYSTEM 


Summers  warns  against  protectionism 


By  Nancy  Dunne  In  Washington 


Larry  Summers,  US  deputy 
Treasury  secretary,  yester- 
day warned  countries  rav- 
aged by  currency  crises  not 
to  reject  the  rules  of  interna- 
tional capitalism. 

"It  would  be  a catastrophe 
if  countries  were  to  develop 
the  idea-  that  somehow  with- 
drawing from  the  global  sys- 
tem was  right  and  that 
building  the  foundation  for  a 


market  economy  was 
wrong,"  he  said  at  a Federal 
Deposit  Insurance  Corpora- 
tion conference. 

The  warning  seemed  to  be 
directed  at  Malaysia,  which 
has  imposed  capital  controls, 
as  well  as  Russia,  which  has 
imposed  a moratorium  on 
some  of  its  foreign  debts. 

“Countries  that  choose  to 
embrace  unilateral  action  as 
a substitute  for  reform  and 
co-operation  hurt  the  world 


system  and.  by  severing  ties 
to  the  world  markets,  hurt 
the  prospects  of  their  own 
citizens  most  of  all,"  Mr 
Summers  said. 

He  said  he  did  not  expect 
the  meeting  next  Monday  of 
finance  officials  of  the  Group 
of  Seven  industrialised  coun- 
tries to  find  solutions  for 
Russia’s  problems.  Russia 
should  resolve  its  political 
uncertainties  before  other 
nations  can  "calibrate  an 


international  response”,  he 
said. 

The  Russian  banking  sys- 
tem has  been  in  turmoil 
since  the  government  last 
month  allowed  the  rouble  to 
depreciate.  Mr  Summers  said 
that  there  was  no  alternative 
to  a stable  currency  for  Rus- 
sia "and  that  means  finan- 
cial practices  that  make  pos- 
sible a stable  currency”. 

Countries  had  to  shape 
their  own  destinies,  he  said. 


Russia  faced  "profound  chal- 
lenges that  first  and  most  of 
all  are  political".  Although 
the  US  was  prepared  to  help. 
Russia  itself  should  act  to 
create  "sound  money,  a rule 
of  law,  enforcement  of  prop- 
erty rights  and  con- 
tracts. . . requisites  for  eco- 
nomic success". 

Mr  Summers  said  the  Asia 
crisis  had  pointed  to  the 
need  for  strong  supervisory 
hanking  regimes  as  well  as 


the  need  to  act  swiftly  when 
troubles  occured.  "We  have 
seen  in  recent  months  in 
Asia.  . , the  danger  of  open- 
ing the  capital  account  when 
incentives  are  distorted  and 
domestic  regulation  and 
supervision  is  inadequate." 
The  solution  to  the  crisis 
was  resumed  lending,  he 
said.  Asian  governments  had 
to  spend  "large  amounts  of 
public  funds”  to  stimulate 
their  economies. 


Alabama  buzzes  with  the 


Afaftama:  economic  take-off 


•firJ 


sound  of  global  business 


The  state  has  succeeded  in  luring  jobs  from  more  costly  areas 
and  still  cannot  find  enough  workers,  writes  Richard  Wolffe 


For  two  decades,  the  acres 
of  concrete  were  largely 
abandoned,  and  the  local 
economy  could  not  recover 

from  the  loss  of  17,000  jobs. 
The  huge  hangars  of  the  for- 
mer US  air  force  base,  which 
once  housed  B27  bombers, 
were  only  dusted  down  as 
film  sets  for  movies  such  as 
the  science  fiction  block- 
buster, Close  Encounters  of 
the  Third  Kind. 

Today,  Brookley  Airport  in 
Mobile,  Alabama,  opens  its 
doors  to  a different  kind  of 
dying  visitor.  Despite  the 
scorching  Gulf  of  Mexico 
heat,  its  hangars  are  buzzing 
with  the  sound  of  engineers 
refitting  aircraft  for  the  US 
and  international  markets. 

Now  the  managers  of 
Mobile  Aerospace  Engineer- 
ing (MAE)  face  an  unfore- 
seen problem.  They  cannot 
find  enough  workers. 

The  Singapore-owned  com- 
pany. with  US$1 00m  in  reve- 
nues, employs  850  staff. 
Ronnie  Koh,  MAE's  presi- 
dent. says  he  would  raise  his 
workforce  to  more  than  1,000 
if  he  could  only  find  the 
people.  "The  economy  is  so 
strong,  there  are  very  few 
people  out  of  work.  Every 
airfield  with  an  aircraft 
needs  an  engineer,  and  the 
bigger  companies  pay  higher 
salaries  and  give  better  ben- 
efits.” he  adds. 

The  skilled  labour  market 


is  now  so  tight  that  MAE 
sponsors  local  high  school 
children,  some  as  young  as 
15,  to  attract  them  in  due 
course  to  work  at  the  former 
airbase.  The  company 
believes  local  recruits  will 
accept  lower  salaries  than  it 
would  have  to  pay  outsiders, 
to  stay  close  to  friends  and 

families 

Mobile's  economic  revival 
is  a reflection  of  how  Ala- 
bama. along  with  other 


'Few  businesses 
of  any  size  have 
isolationist 
mentalities  now’ 


states  in  the  south-eastern 
US.  is  thriving  in  the  global 
economy.  Alabama  has 
largely  embraced  interna- 
tional business,  despite  its 
reputation  as  a backward- 
looking  state  with  a history 
of  racial  conflict  in  the  civil 
rights  struggle  of  the  1960s. 

Its  sales  pitch  is  simple. 
With  the  combination  of  a 
relatively  low-cost  work- 
force, weak  unions,  low 
taxes  and  a homespun  way 
of  life,  the  state  has  lured 
manufacturing  jobs  from 
more  costly  areas  both  in  the 
US  and  internationally. 


Since  1993,  Alabama  has 
seen  the  number  of  jobs  rise 
by  12  per  cent,  from  1.85m  to 

2.06m.  The  state's  unemploy- 
ment rate  stands  at  3.6  per 
cent,  below  the  national 
average  of  4.5  per  cent. 

Further  along  Mobile  Bay 
from  the  airstrip,  the  state 
docks  are  beginning  a long- 
overdue  $200m  renovation. 
The  hope  is  they  will  become 
a key  trading  point  between 
the  northern  and  southern 
countries  of  the  North  Amer- 
ican Free  Trade  Agreement. 

The  docks  investment  is 
based  on  thriving  trade 
between  Alabama  and 
Mexico,  as  exports  have 
increased  fivefold  since  1995, 
from  $240m  to  $l.01bn  last 
year.  One  train  alone  brings 
450  Ford  Winstar  minivans 
from  Kentucky  for  export 
via  the  port  each  week,  and 
imports  another  450  Mexi- 
can-built Chrysler  Dodge 
Ram  trucks. 

At  the  edge  of  the  docks 
stands  a vivid  example  of 
how  the  region  has  used  its 
low-cost  economy  to  advan- 
tage. British  Steel  shipped 
an  entire  iron  plant  - lock, 
stock  and  barrel  - from  Hun- 
ters ton  in  Scotland  two 
years  ago.  The  plant  had 
been  mothballed  since  1980 
in  the  UK,  but  has  now  been 
in  production  in  Alabama  for 
almost  a year. 

The  trade  in  jobs  is  a 


Total  employment 
mflfcn 

25 


Exports  by  country  of  tfesfaaliDn.-, 

$m  •.  w :.-  - 

160 


1992  93  94  95 
ScumKAOJUtHSa 


96  97  98" 

. ‘Yea- la  Marti 


1995- 


'"98 -v 


two-way  process  in  the  Gulf 
region,  and  many  Alabama 
jobs  have  moved  out  of  the 
US  altogether  to  the  lower- 
cost  countries  of  Latin 
America.  Since  1995,  the 
state  has  lost  20,000  jobs  in 
its  traditionally  strong  tex- 
tile industry. 

The  result  is  a dizzying 
churning  of  factories  and 
jobs  across  the  state. 

In  1996,  Lee  Apparel 
moved  its  sewing  business 
from  low-cost  Mobile  to  low- 
er-cost Mexico,  with  the  loss 
of  500  jobs.  A year  later,  the 
city  had  filled  the  former  Lee 
factory  with  a computer 
assembly  business  called 
Racer  Computer,  from  Phoe- 
nix. Arizona.  The  new  com- 


pany only  employs  about  100 
people,  but  plans  to  increase 
its  workforce  to  400  over  the 
next  three  years. 

The  state's  largest  success 
is  without  doubt  its  new 
Mercedes-Benz  plant.  The 
Tuscaloosa  site  attracted  the 
car  maker  with  a typical 
Alabaman  combination  of  a 
highly  skilled  workforce  at 
relatively  low  cost,  and  the 
chance  to  build  a new  man- 
agement culture  outside  Ger- 
many, without  union 
involvement  At  its  launch, 
the  car  factory  received 
45.000  applications  for  L500 
jobs  building  the  new 
M-ctass  sports  utility  vehicle. 

Elmer  Harris,  president 
and  chief  executive  of  Ala- 


bama Power,  the  regional 
electricity  company,  says: 
"Companies  like  Mercedes 
have  changed  the  profile  of 
Alabama  internationally.  I 
recently  came  back  from  a 
trip  to  Asia,  and  not  a single 
person  asked  me  where  Ala- 
bama was.  They  knew  where 
it  was  because  of  the  posi- 
tive publicity  the  state 
received  when  Mercedes 


came  in. 

"The  biggest  issue  facing 
our  businesses  now  is  the 
need  to  be  global.  There  are 
few  businesses  of  any  size 
with  isolationist  mentalities 
now.  The  south-east  is  the 
world's  preferred  economy 
in  the  US.  and  Alabama  is 
right  in  the  centre  of  ft." 


SEC  chairman 
brings  in  new 
bond  roles 


By  Tracy  Corrigan  in  New  York 


Arthur  Levitt,  chairman  of 
the  Securities  and  Exchange 
Commission,  the  main  US 
regulatory  agency  for  securi- 
ties, yesterday  announced 
measures  to  improve  trans- 
parency in  the  US  corporate 
bond  market 

In  New  York  Mr  Levitt 
said  the  National  Associa- 
tion of  Securities  Dealers 
(NASD),  the  self-regulatory 
organisation  for  brokers  and 
dealers,  would  implement 
new  rules  requiring  dealers 
to  report  all  transactions  for 
immediate  price  dissemina- 
tion. 

Mr  Levitt  noted  the  eco- 
nomic significance  and  size 
of  the  US  bond  market, 
where  trading  volume  of 
$35bn  a day  dwarfs  the 
$28bu  of  stocks  traded 
daily  on  the  New  York  Stock 
exchange. 

But  he  said  debt  markets 
had  historically  lagged 
behind  equity  markets  in 
making  price  information 
available  to  the  public.  The 
government  bond  or  Trea- 
suries market  was  character- 
ised by  high-quality  pricing 
information  for  investors, 
but  price  transparency  in 
the  area  of  corporate  bonds 


was  "simply  not  up  to  par.” 

He  said  NASD  would  cre- 
ate a database  of  corporate 
bond  transactions,  allowing 
regulators  to  “take 
a proactive  role  in 
supervising  the  corporate 
debt  market.”  rather  than 
merely  reacting  to  investors' 
complaints. 

The  database  would  be 
used  to  help  run  a surveil- 
lance programme  designed 
to  detect  fraud. 


With  the  new  measures. 
Mr  Levitt  said  he  expected 
corporate  bond  market 
transparency  would  soon 
surpass  that  of  the  munici- 
pal bond  market,  which  had 
substantially  improved  since 
price  reporting  rules  were 
tightened  in  1995. 

He  said  he  was  worried  by 
"anecdotal  evidence  of  the 
possible  misuse  of  inside 
information  in  the  high-yield 
market”. 

Mr  Levitt  said  that  partici- 
pants in  syndicated  loans 
who  attended  meetings  with 
borrowers'  management  and 
banks  should  not  use  or  leak 
information,  which  could, 
affect  the  price  of  the  compa- 
ny's bonds.  He  described  this 
as  "unacceptable”  and 
termed  it  “insider  trading”. 


Malan  defends  Brazil 


budget  spending  cuts 


By  Jonathan  Wheatley 
In  Sio  Paulo 


Spending  cuts  announced  by 
the  Brazilian  government 
this  week  represent  a fresh 
commitment  to  tough  fiscal 
management  and  go  beyond 
a short-term  reaction  to  the 
global  financial  crisis.  Pedro 
Malan,  finance  minister,  said 
yesterday. 

His  comments  followed  a 
negative  response  to  the  cuts 
on  financial  markets.  Ana- 
lysts said  they  failed  to 
tackle  Brazil’s  overall  fiscal 
deficit,  currently  about  7 per 
cent  of  gross  domestic  prod- 
uct, and  were  aimed  chiefly 


at  absorbing  the  extra  debt 
servicing  cost  caused  by 
Tuesday's  increase  in  the 
central  bank's  prime  lending 
rate  from  19  per  cent  a year 
to  29.75  per  cent 

"Some  people  were  expect- 
ing an  absolutely  bloody  set 
of  wide-ranging  cuts,  which 
would  have  had  no  credibil- 
ity,” Mr  Malan  said  in  an  FT 
interview.  “What  we  have 
introduced  are  hard,  strong 
measures.” 

These  included  a legal 
commitment  to  produce  a 
federal  primary  surplus  of  at 
least  R$5bn  fUS$4.3bn}  this 
year,  up  from  a previous  tar- 
get of  R$L39bn. 


Panama  : 


eager  to 
put  the 
squeeze 
on  canal 


Harder  commercial 
edge  is  planned, 
says  James  Wilson 


Balboa  is  a town  like  few 
others  in  Panama.  The 
streets  are  wide,  lawns 
manicured,  and  the  atmo- 
sphere is  one  of  suburban 
calm  forged  from  the  unruly 
tropics.  Even  the  avenue 
near  the  imposing  headquar- 
ters of  the  Panama  Canal 
Commission  (PCO  was  laid 
out  to  measure  - 1,000ft  by 
110ft,  mirroring  the  dimen- 
sions of  the  canal's  enor- 
mous lock  chambers  a cou- 
ple of  miles  away. 

Everything  about  this 
American-built  community 
suggests  order  and  precision 
- qualities  the  PCC.  the  US 
government  agency  that 
runs  the  canal  holds  dear,  as 
it  goes  about  the  task  of 
shepherding  more  than 
13.000  ships  through  the 
waterway  every  year. 

Below  the  surface,  how- 
ever. this  ordered  existence 
is  being  shaken  up  as  the 
PCC  prepares  to  hand  over 
at  the  end  of  1999  the  run- 
ning of  the  canal  to  a new, 
Panamanian,  successor. 

Signs  are  emerging  that 
the  incoming  Panama  Canal 
Authority  (PC A)  will  be  run- 
ning a leaner,  fitter  organi- 
sation than  the  PCC,  bring- 
ing a harder  commercial 
edge  lo  the  colonial  gentility 
of  past  canal  affairs. 

“Change  should  be  embed- 
ded in  our  system,”  says 


A programme  to  widen  the  narrowest  parts  of  th®  canal  wffl  be  overseen  by  Alberto  AlemAn  (above) 


Alberto  Alem&n,  a Panama- 
nian engineer  who  has  held 
the  senior  post  of  adminis- 
trator at  the  PCC  since  1996. 
and  who  was  last  month 
appointed  to  head  the  PCA 
until  2005. 

Efficiency  and  reliability 
are  the  watchwords  as  the 
canal  tries  to  squeeze  more 
capacity  out  of  its  systems  to 
cope  with  a steady  increase 
in  traffic.  This  year  tolls  for 
small  boats  were  increased 
to  reflect  the  bottlenecks 
they  cause  for  bigger  ships. 

A Jibn  modernisation  pro- 
gramme is  under  way, 
including  a widening  of  the 
canal's  narrow  central  sec- 
tion. When  completed  in  2002 
it  will 'allow  two-way  traffic 
for  even  the  largest  ships  - 
the  last  option  to  boost  the 
canal's  capacity  before  a 
costly  extra  lane  of  locks  is 
considered. 

Further  efficiency  gains 
are  being  sought  from  a 
"manpower  study”  to  look  at 
staffing  arrangements  - 
which  has  aroused  suspicion 
of  a wave  of  redundancies 
among  the  8, 000-strong-  work- 
force. 

Mr  Alemfin  says  the 
restructuring  aims  at  mak- 
ing the  organisation  more 
corporate,  enabling  decisions 
to  be  made  quicker.  “We 
have  to  analyse  our  man- 


power and  our  processes.  In 
an  organisation  that  was  not 
accustomed  to  change,  it 
brings  uncertainty.” 

The  PCC  is  also  hiring  spe- 
cialists to  explore  what  it 
calls  a "market-based.”  toll 
system,  saying  it  has  been 
“stirred  to  operate  In  a more 
business-like  maimer”. 

Canal  users  are  unlikely  to 
mind  a more  business-like 
approach,  as  long  as  it  does 
not  extend  to  prices  being 
raised  and  profits  being 
milked  but  of  the  canal 
instead  of  going  into 
improvements. 

Roy  Newall.  a shipping 
agent  in  the  port  of  CoI6n, 
says  maintenance  and  costs 
~ tolls  have  risen  16  per  cent 
in  the  last  two  years  to  fund 
the  modernisation  - are 
among  shippers'  main  wor- 
ries. "Panama  is  not  noted 
for  Its  maintenance  pro- 
grammes,” he  says. 

Mimmo  Scannapieco, 
vice-president  for  ocean 
freight  at  Continental  Grain, 
a big  user  at  the  canal,  says: 
“We  do  not  see  any  reason 
why  [the  canal]  should  not 
go  on  as  it  has  in  past  years. 
It  is  one  of  the  most  impor- 
tant sources  of  income  [Pan- 
ama] has,  so  it  is  in  their 
interests  not  to  create  a situ- 
ation where  the  shipping 
community  feels  it  is 


better  to  take  other  routes.” 

According  to  the  PCC,  the 
canal  was  worth  more  than 
$520m  to  Panama  last  year. 
That  Includes  wages  and 
spending  on  goods  and  ser- 
vices as  well  as  more  than 
SI 00m  - mostly  toll  revenues 
- paid  to  the  state  under  the 
terms  of  the  1977  canal  trea- 
ties. 

The  PCA  will  continue  to 
make  toll  payments  to  the 
government,  and  Mr  Alemdn 
says  a further  $30m  a year 
will  be  saved  on  benefits  the 
PCC  paid  to  its  US  workers. 

The  handover  is  less  Uiwn 
500  days  away  - a landmark 
Ernesto  Perez  Ballad  ares, 
Panama's  president,  marked 
by  suggesting  the  extra 
savings  should  go  into  a 
fund  to  improve  education. 

Opponents  said  his  words 
were  aimed  more  at  boosting 
his  campaign  for  a change  in 
the  constitution  to  enable 
him  to  serve  another  five 
years  as  president.  In  the 
end,  he  lost  August's  refer- 
endum on  the  constitutional 
changes  and.  with  it,  his 
chance  of  being  in  charge 
when  the  canal  is  handed 
over. 

But  political  debate  is  sure 
to  continue  over  how  Pan- 
ama can  make  best  use  of 
the  resources  the  canal  will 
generate. 


Mexico  prepares  for  energy  sell-offs 


By  Lucy  Conger  In  Mexico  Hty 


Preparation  for  a partial 
sell-off  of  a portion  of 
Mexico's  petrochemical 
industry  will  start  next  week 
with  publication  of  the  bid- 
ding procedures  for  the 
Morelos  petrochemical  com- 
plex, according  to  Louis  Tel- 
lez. the  country’s  energy 
minister. 

The  complex  in  the  state 


of  Veracruz  is- the  first  and 
most  modem  of  seven  plants 
to  be  put  up  for  sale  over  the 
next  few  months.  Private 
investors  may  acquire  a 
minority  stake  of  no  less  or 
more  than  49  per  cent  in 
each  of  these  plants. 

The  sell-off  is  aimed  at 
raising  capital  to  modernise 
Mexico's  petrochemical 
plants  which  over  the 
last  few  years  have  Lacked 


much-needed  investment. 

To  raise  adequate  capital 
for  new  investment  in  the 
Morelos  plant  the  govern- 
ment has  pledged  to  put  up 
$5im,  which  private  inves- 
tors will  match  with  $49m. 

A similar  scheme  will  be 
devised  for  the  other  plants. 
Under  the  quasi-privatisa- 
tion scheme  the  plants  will 
have  greater  autonomy  in 
budgetary  control  than 


other  state  companies. 

The  partial  sell-off  is  the 
result  of  a political  compro- 
mise reached  in  October  1996 
with  Congress  which 
staunchly  resisted  privatisa- 
tion of  the  oil  industry.  Leg- 
islators agreed  to  a sell-off  of 
a minority  stake  in  the  com- 
plexes that  produce  what 
Mexican  law  categorises  as 
secondary  petrochemical 
products. 


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E.  .1  - i * me  directive  will  oe  applied 

SIH  lulino-  is  Complicating  business 
“**'*r*  * I"  v planning  and  could  impede 


Bid  to 
avert 
threat  of 
‘cyber 
trade  war’ 

By  Buy  de  Jonquteres 

The  US  and  the  European 
Union  appear  to  be  closer  to 
agreement  on  an  outline 
peace  formula  to  avert  the 
threat  of  the  world’s  first 
cyber-trade  war. 

Both  sides  are  cautiously 
optimistic  that  recent  US 
proposals  could  provide  a 
basis  for  settling,  at  least 
temporarily,  a lengthy  dis- 
pute over  the  EU’s  data  pro- 
tection directive. 

The  directive,  intended  to 
safeguard  individual  pri- 
vacy, empowers  EU  authori- 
ties to  cut  off  after  October 
25  exports  of  many  kinds  of 
personal  information  to 
countries  which  they  judge 
not  to  have  adequate  data 
protection  arrangements. 

Brussels  is  not  yet  satis- 
fied that  the  US  meets  the 
directive’s  standards.  Wash- 
ington. which  calls  the  EU 
law  heavy-handed  and 
bureaucratic,  has  threatened 
to  challenge  it  in  the  World 
Trade  Organisation  if  it  is 
used  to  sever  transatlantic 
data  flows. 

Companies  on  both  sides 
of  the  Atlantic  say  such 
action  would  seriously  dis 
rupt  trade.  They  complain 
that  uncertainty  about  how 
the  directive  will  be  applied 


Dasa  chief  calls  on 
Paris  to  go  further 


By  Michael  Skapftiker  and 
Alexander  Mcoff 


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the  growth  of  electronic 
commerce. 

Hopes  of  a breakthrough 
have  been  raised  by  US  gov 
eminent  support  for  recent 
efforts  by  leading  US  compa- 
nies to  establish  stronger 
voluntary  self-regulation  of 
consumer  services  they  pro- 
vide electronically,  primarily 
on  the  internet. 

The  plan  involves  creating 
“safe  harbours"  for  corpo 
rate  websites  which  sub- 
scribe to  a common  code  of 
conduct  for  protecting  per- 
sonal privacy.  The  code 
would  be  enforced  by  Inde- 
pendent watchdogs,  such  as 
the  US  Better  Business 
Bureau. 

A European  Commission 
official  said  the  scheme 
seemed  in  principle  “a  rea 
sonable  approach".'  which 
could  lead  the  EU  to  a “pre- 
sumption of  adequacy”  in 
assessing  US  data  protection 
rules. 

However,  any  agreement 
would  depend  on  the  US  pro- 
viding fuller  details  and 
assurances  about  how  the 
scheme  would  work.  In  par- 
ticular. the  EU  wants  Wash- 
ington to  spell  out  precisely 
the  proposed  standards  for 
data  protection  “harbours", 
as  well  as  more  information 
about  bow  companies  plan 
to  comply  with  them. 

A senior  US  official  said  he 
hoped  a settlement  could  be 
agreed  in  principle  with  the 
EU  early  next  month.  How- 
ever. Commission  officials 
wore  less  confident,  saying 
EU  member  states  must  first 
discuss  and  approve  any  pro- 
posed agreement. 

They  also  said  a settle- 
ment would  not  permanently 
remove  the  threat  of  action 
under  the  directive,  which 
could  be  revived  if  US  data 
protection  proved  ineffec- 
tive. 

The  US  plan  is  intended  as 
much  to  placate  domestic 
political  and  public  opinion. 
Washington  has  been 
thrown  on  the  defensive  by 
several  recent  reports,  which 
have  condemned  existing  US 
data  protection  safeguards 
as  inadequate. 

President  Bill  Clinton  s 
administration  has  warned 
companies  that  unless  they 
adopt  higher  standards.  Con- 
gress will  impose  them 
through  legislation.  Many 
large  US  companies  have 
responded  by  forming  alli- 
ances to  promote  improved 
self-regulation. 

• Paul  Taylor  adds:  Inter- 
net users  should  be  charged 
on  a “pay-as-you-go"  basis 
anil  hare  to  purchase  e-mail 
stamps  before  sending  elec- 
tronic messages.  Bob  Met- 
calfe. a US  technology  guru, 
has  urged. 

Mr  Metcalfe,  who  invented 
the  Ethernet  computer  com- 
munications protocol  and 
Tounded  3Com.  the  network 
equipment  group,  told  dele- 
gates attending  an  IT  confer- 1 
cnee  m Paris  that  new 
charging  mechanisms  were 
required  to  encourage  more 
efficient  use  of  the  Internet 
and  hind  the  building  of  the 
internet  infrastructure. 

He  added  that  forcing 
e-mail  senders  to  purchase 
electronic  stamps  would  help 
reduce  “junk  mail"  and 
“spam",  but  conceded  such 
c barges  could  not  be  intro- 
duced until  viable  micro-pay- 
ment systems  had  been 
developed. 


How  much  pressure  should 
be  put  on  the  French  gov- 
ernment? This  is  the  ques- 
tion facing  German  and  Brit- 
ish executives  as  they 
attempt  to  restructure  the 
European  aerospace  and 
defence  industry. 

Manfred  Bischoff,  chief 
executive  of  Daimler-Benz 
Aerospace  (Dasa),  and  one  of 
the  key  figures  in  the  trans- 
formation of  Europe's  aero- 
space industry,  accepts  that 
the  French  government  took 
a vital  step  by  announcing 
earlier  this  year  that  it 
would  partly  privatise  Aeros- 
patiale. 

The  decision  to  merge 
Aerospatiale  with  Matra,  the 
defence  arm  of  the  privately 
owned  Lagard&re  group, 
partly  opened  the  door  to  the 
formation  of  a European 
Aerospace  and  Defence  Com- 
pany (EADC).  Dasa  and  Brit- 
ish Aerospace  had  said  they 
would  not  be  prepared  to 
include  Aerospatiale  in  the 
EADC  if  it  remained  state- 
owned:  the  merger  with 
Matra  will  reduce  the  gov- 
ernment’s holding  in  Aeros- 
patiale to  less  than  50  per 
cent 

“If  you  had  offered  a bet 
that  the  French  government, 
being  socialist  and  partly 
communist,  would  have 
partly  privatised  Aerospa- 
tiale. nobody  would  have 
accepted  that  bet,"-  Mr  Bis- 


choff  said  in  an  interview. 

Bat.  he  added,  Paris 
needed  to  reduce  its  stake  in 
Aerospatiale  by  far  more.  He 
would  not  specify  what  state 
holding  would  be  acceptable, 
but  said  it  had  to  be  amall 
enough  for  the  government 
to  have  no  significant  influ- 
ence over  the  EADC. 

"If  there’s  a minimal 
shareholding,  I wouldn’t 
care.  What  1 wouldn’t  accept, 
and  what  my  shareholders 
wouldn’t  accept,  is  to  have  a 
joint  company  with  the  gov- 
ernment. The  agenda  of  a 
government  is  different  - 
and  with  good  reason.  They 
don’t  want  you  to  lay  people 
off,  they  don’t  want  you  to 
dose  factories." 

Dasa  and  BAe  have  shown 
some  impatience  with  the 
speed  at  which  the  French 
are  moving  and-  there  have 
been  suggestions  that  the 
German  and  UK  groups 
might  merge,  leaving  Aeros- 
patiale on  the  sidelines. 

Mr  Bischoff  accepted  the 
French  government  would 
not  necessarily  react  to  such 
a merger  by  immediately 
agreeing  to  reduce  its  Aeros- 
patiale stake. 

“Always,  when  someone  is 
left  out,  there’s  a counter- 
reaction.  1 doubt  that  the 
first  thing  {Paris!  win  do  is 
fall  into  line.  We  shouldn’t 
underestimate  that  there  are 
a lot  of  emotions  around." 

But,  he  added,  if  the 
French  were  genuinely  com- 
mitted to  the  creation  of  the 


EADC-  they  should  not 
regard  a potential  Dasa-BAe 
merger  as  a threat.  “If  it’s 
obvious  that  it’s  the  first 
step  towards  the  creation  of 
the  EADC,  why  should  that 
be  seen  as  hostile  to  any- 
body - if  all  the  potential 
partners  believe  that  we 
want  to  create  the  EADC?” 

Dasa,  BAe  and  Aerospa- 
tiale will  have  to  decide  how 
to  Include  companies  such 
as  Alania  of  Italy,  of 
Sweden  and  Casa  of  Spain  in 
the  EADC.  They  will  also 
have  to  determine  what  rela- 
tionship the  EADC  should 
have  with  electronics  compa- 
nies such  as  GEC  of  the  UK 
and  Thomson  of  France. 

He  said  Integrating  the 
electronics  companies  fully 
into  the  EADC  would  create 
problems  - for  example, 
GEC  was  an  important  Boe- 
ing subcontractor  - but  that 
one  answer  might  be  for  the 
EADC  to  have  joint  ventures 
with  the  electronics  groups. 

How  long  does  France 
have  to  privatise  Aerospa- 
tiale fully?  “Every  time  we 
mention  any  timetable,  we 
are  accused  of  blackmailing 
our  French  friends.  But  are 
we  going  to  wait  30  years? 
There’s  a lot  of  competitive 
pressure  from  across  the 
Atlantic,"  Mr  Bischoff  said. 

“If  we  wait  too  long,  we 
will  be  pushed  back  in  tech- 
nology and  market  share 
and  to  pick  that  UP  takffg 
added  effort,  money  and 
time." 


Manfred  Bischoffi  Hie  agenda  of  a government  is  different  - and 
with  good  reason.  They  don’t  want  you  to  lay  people  off 


France  to  order  Rafale  next  year 


France  will  place  a new 
order  for  the  Rafale  combat 
aircraft  earty  next  year,  Alain 
Richard,  the  French  defence 
minister,  said  yesterday. 

A block  order  for  48  of 
the  aircraft,  which  is 
manufactured  by  Dassault 
Aviation,  is  included  in  the 
French  military  programme 
for  1997-2002. 


Jean-Vves  Helmer,  head 
of  the  government 
armaments  agency,  said 
yesterday  the  government 
was  still  working  “on  the 
basis  of  48  aircraft,  with  the 
“possfoilrty  of  both  firm  sales 
and  options”. 

The  government  has 
already  ordered  13  aircraft 
for  delivery  in  2003. 


ARMS  PROCUREMENT  TREATY  SIGNED  BY  FOUR  NATIONS 


Boost  for  European  weapons  agency 


By  Alexander  IficoO, 
Defence  Correspondent 


Defence  ministers  of  Britain, 
France.  Germany  and  Italy 
yesterday  signed  a treaty 
giving  legal  status  to  Occar. 
the  embryonic  European 
arms  procurement  agency. 

George  Robertson,  UK 
defence  secretary,  said  at  the 
Famborough  Air  Show  that 

CONTRACTS 


the  treaty  was  a step 
towards  more  effective,  busi- 
nesslike and  timely  procure- 
ment in  collaborative  pro- 
grammes. 

Eurofighter  combat  air- 
craft and  Horizon  frigates, 
two  of  the  largest  joint  pro- 
curements, are  not  to  be 
handled  by  Occar.  However, 
it  will  manage  procurement 
of  armoured  personnel  carri- 


ers for  Britain,  France  and 
Germany. 

Officials  said  the  treaty 
would  give  an  important 
boost  to  Occar,  which  has 
been  slow  in  getting  under 
way. 

Staff  seconded  to  the 
agency  would  now  be  able 
to  take  decisions  in  the 
agency's  interests  rather 
than  simply  representing 


their  own  countries. 

Development  of  Occar 
would  also  permit  a shift 
away  from  strict  application 
of  the  “juste  retour  " principle 
under  which  the  share  of 
wort  of  programmes  is  allot- 
ted depending  on  a country’s 
purchases. 

Instead  of  applying  work 
shares  on  specific  pro- 
grammes, Occar  could  deride 


to  allot  work  across  the 
spread  of  programmes  it 
handles,  permitting  more 
efficient  procurement. 

Mr  Robertson  said:  “Occar 
offers  us  the  opportunity  to 
avoid  reinventing  the  wheel 
every  time  work  starts  on  a 
collaborative  equipment 
project." 

Other  nations  are  expected 
to  join  the  agency  later. 


NEWS  DIGEST 

ASIA’S  MOTOR  INDUSTRY 


Fledgling  vehicle  makers 
‘facing  bleak  future’ 

Asia’s  financial  crisis  and  its  aftermath  will  spell  "the  death 
kneU”  for  the  fledgling  vehicle  industries  of  Taiwan  and  the 
Philippines  and  ravage  the  automotive  components  indus- 
try of  much  of  the  region,  according  to  a new  analysis  by 
the  Economist  Intelligence  Unit.  Among  the  region's 
vehicle  companies  most  at  risk  are  Proton  of  Malaysia, 
most  assemblers  in  India,  including  Maruti;  Kia  and  Dae- 
woo in  South  Korea  and  aJI  assemblers  in  Thailand  and 
Indonesia,  as  well  as  Taiwan  and  the  Philippines,  accord- 
ing to  the  study*.  It  projects  that  the  region’s  vehicle  man- 
ufacturing output  will  plunge  by  30  per  cent  and  sales  by 
37  per  cent  Capacity  utilisation  in  the  Philippines  this  year 
has  reached  only  13  per  cent,  the  study  says.  "There  is  a 
period  of  massive  consolidation  ahead,  with  every  country 
in  the  region  facing  the  prospect  of  rationalisation,  clo- 
sures and  cutbacks.”  John  Griffiths,  London 
"The  Automotive  Sectors  of  Asia-Pacific:  After  the  Crisis. 
BU,  15  Regent  St,  London  SW1Y4LR.  $1,045 

DIGITAL  COMMUNICATIONS 


Pirelli  wins  $240m  US  order 

Pirelli,  the  Italian  tyre  and  cable  group,  yesterday  won  a 
$240m  order  to  provide  optical  cables  and  systems  for  a 
US  coast-to-coast  high  capacity  digital  communications 
network.  Digital  Teleport  Inc  (DTI)  of  St  Louis,  Missouri, 
said  Pirelli  would  supply  optical  systems  and  cables  to 
complete  its  new  coast-to-coast  digital  fibre  optic  network 
taking  in  37  US  states. 

The  US  deal  follows  a string  of  other  optical  cable  and 
systems  contracts  won  by  Pirelli  from  leading  Internationa] 
telecom  operators  including  British  Telecom,  Deutsche 
Telekom,  France  Telecom  and  Telstra  in  Australia.  The  Ital- 
ian company  has  increasingly  been  focusing  on  the  devel- 
opment of  optical  fibres  and  photonics  technologies  for 
communications  networks  and  superconductivity  for  power 
transmission  to  balance  its  more  mature  traditional  tyre 
activities.  Paul  Betts,  MB  an 


WORLD  FISH  STOCKS 


Subsidies  'breach  trade  rules' 

More  than  90  per  cent  of  the  billions  of  dollars  in  subsidies 
granted  to  the  world's  fishing  fleets  are  likely  to  be  in  vio- 
lation of  global  trade  rules,  according  to  a report  released 
yesterday  by  the  World  Wildlife  Fund. 

Most  of  the  subsidies  are  supporting  fleets  which  are 
taking  a dangerous  toll  on  fish  stocks  around  the  world. 
Remote,  improtected  fisheries  off  the  coast  of  developing 
countries  are  being  particularly  hard  hit 

Government  subsidies  are  estimated  conservatively  to 
total  20-25  cents  for  every  dollar  earned  by  fishermen 
worldwide,  said  David  Shorr  of  the  WWF.  "With  70  per 
cent  of  the  world’s  most  valuable  fisheries  overfished  or 
nearly  so,  governments  continue  to  promote  an  industry 
whose  size  and  practices  are  a recipe  for  economic  ruin.” 

Sane  of  the  subsidies  are  permitted  under  World  Trade 
Organisation  rules.  In  fact,  some  - such  as  vessel  buy- 
back programmes  and  worker  retraining  - are  designed  to 
reduce  the  stress  on  the  world’s  fish  stocks. 

Nancy  Dunne,  Washington 


Airbus  wins  big  orders 
from  UPS  and  GE  unit 


By  Michael  Sk^ftiker 

Airbus  Industrie  had  the 
best  of  the  third  day  of  the 
Fare  borough  air  show,  with 
large  orders  from  two  US 
customers  - United  Parcel 
Service  and  Genera]  Electric 
Capital  Aviation  Services 
(Gecas). 

The  UPS  purchase  of  up  to 
60  A300  aircraft  was  particu- 
larly cheering  for  Airbus,  as 
U was  its  first  from  the  US 
delivery  company.  No61  For- 
geard.  Airbus  managing 
director,  said  the  order  rep- 
resented a substantia]  vic- 
tory for  the  European  con- 
sortium because  UPS  was 
the  world's  largest  package 
delivery  company. 

UPS,  which  is  based  in 
Louisville,  Kentucky,  has 
placed  firm  orders  for  30  of 


the  aircraft,  which  will  be 
powered  by  either  General 
Electric  or  Pratt  & Whitney 
engines,  and  has  taken 
options  on  a Anther  3a 

Gecas,  a unit  of  GE  Capi- 
tal, placed  firm  orders  for  30 
narrow-bodied  A320  aircraft 
and  took  options  on  a fur- 
ther 10.  The  aircraft  will  be 
powered  by  CFM.  engines, 
produced  by  a joint  venture 
between  GE  and  Sneczna  of 
France. 

The  Airbus  successes  fol- 
low orders  earlier  in  the 
week  from  Emirates,  the 
Dubai-based  airline,  and  the 
International  Lease  Finance 
Corporation  of  the  US. 

Denis  Nayden,  GE  Capi- 
tal’s president,  said  his  com- 
pany bad  ordered  the  air- 
craft, which  will  be  delivered 
between  2003  and  2006,  in 


spite  of  some  industry  fears 
that  the  aviation  business 
might  be  faring  a downturn. 

Mr  Nayden  said:  “We’ve 
been  in  this  business  a long 
time.  There’s  no  question 
that  this  industry  is  cyclical 
and  it’s  difficult  to  call  the 
lows  and  peaks.  Will  there 
be  market  disruptions?  Yes, 
absolutely.  But  we  are  not  in 
this  business  just  for  1998  or 
1999.  We're  in  this  business 
for  the  long  term.  The  very 
nature  of  these  assets  is  that 
they  are  long  term.  You  do 
not  have  to  make  a panic 
decision  when  you  consider 
the  market  over  a long 
period  of  time.” 

Boeing  announced  an 
order  for  12  Boeing  787s  from 
Gecas  and  said  Scandinavian 
Airlines  System  had  ordered 
five  737s. 


WTO  drawn  into  row 
over  anti-Burma  law 


By  Neil  Buckley  in  Bnissets 


The  European  Union  and 
Japan  win  this  month  call 
for  a World  Trade  Organisa- 
tion disputes  panel  over  a 
controversial  Massachusetts 
state  law  barring  procure- 
ment from  companies  trad- 
ing with  Burma. 

The  call  for  a WTO  panel 
is  expected  to  be  made  on 
September  22,  and  follows 
three  set s of  inconclusive 
folks  with  the  US  over  the 
issue. 

It  comes  as  the  National 
Foreign  Trade  Council 
NFTC),  representing  580 
companies,  including  many 
of  the  biggest  US  multina- 
tionals. seeks  to  overturn 
the  1996  Massachusetts  law 
at  a federal  court  in  Boston. 
The  law  effectively  bars 
companies  doing  business 
with  Burma  from  bidding  for 
public  contracts  in  Massa- 
chusetts, worth  about  32bn  a 
year. 

fepns  filed  in  the  federal 
court  this  summer  by  the 
NFTC  suggested  346  compa- 
nies were  affected,  atld 
Apple,  the  computer  group, 
has  cited  the  law  as  one  rea- 
son for  withdrawing  from 


Burma.  The  NFTC  argues 
that  the  law  violates  the  US 
constitution,  which  says 
making  foreign  policy  and 
regulating  foreign  trade  are 
federal  rights. 

The  European  Commis- 
sion, the  EU’s  Brussels-based 
executive  arm,  first  com- 
plained to  the  WTO  about 
the  law  in  June  1997,  with 
Japan  joining  a month  later. 

They  argue  that  the  law 
breaches  the  WTO’s  govern- 
ment procurement  agree- 
ment, which  is  designed  to 
prevent  procurement  deci- 
sions being  based  On  politi- 
cal factors. 

The  US  had  promised 
there  would  be  amendments, 
but  these  simply  haven’t 
happened,”  said  one  Brussels 
official  yesterday. 

The  call  for  a panel  also 
reflects  growing  concern  in 
Europe  over  the  increasing 
tendency  of  the  US  to  impose 
sanctions,  often  with  extra- 
territorial effects. 

The  EU  and  US  narrowly 
avoided  a damaging  clash 
this  year  over  the  Helms- 
Burton  anti-Cuba  law,  penal- 
ising companies  “traffick- 
ing" in  assets  confiscated  by 
the  Castro  regime,  and  the 


Iran-Libya  Sanctions  Act, 
failing  far  sanctions  against 
companies  investing  in  the 
oil  industry  of  those  two 
countries. 

Massachusetts  insists  the 
law  is  not  unconstitutional 
and  has  called  the  NFTC 
action  an  attack  on  state 
sovereignty  by  wealthy  com- 
panies motivated  by  greed.  It 
points  to  the  success  of  sanc- 
tions in  forcing  political 
change  in  countries  such  as 
South  Africa. 

• The  UK  has  called  on  its 
EU  partners  to  take  further 
steps  to  support  Burma’s 
opposition  leader.  Aung  San 
Suu  Kyi,  including  fresh  dis- 
couragement on  trade, 
investment  and  tourism  and 
new  visa  restrictions  for 
Burmese  citizens,  adds  Peter 
Mmrfagnon.  Asia  Editor,  In 

TawHm- 

Derek  Fatehett,  UK  For- 
eign Office  minister,  con- 
demned the  latest  detentions 
of  opposition  figures.  He  said 
he  had  raised  with  other  EU 
countries  the  possibility  of  a 
top-level  mission  to  see  Ms 
Sun  Kyi  and  other  opposi- 
tion figures  and  to  estahWsh 
wfth  the  regime  the  possibil- 
ity for  dialogue. 


MBSEMXOCN 

NIBNMIONM. 


building 


98  - We  are 
up  strength! 


November  10-13, 1998 

New  Munich  Trade  Fair  Centre 


electronica98 

l*  The  international  Trade  Fair 
for  Components  and 
Assembles  in  Electronics 


Messe  MOnchen  GmbH.MBBsegelande 
D-S1823  MQncben 

1U-  (4-4989)  949-01.  Fax  (+4989)  949-09 

nopg/mmMCnncuiV. 


8 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


BRITAIN 


INDEPENDENT  TRADERS  GROUP  SAYS  CONSUMERS  COULD  BUY  VEHICLES  AT  PRICES  AS_MUCH  AS  30%  LOWER  IF  CURBS  EASED 


Court  to  probe  ‘grey’  car  imports  limit 


By  John  Griffiths  in  London 


Independent  car  traders 
have  won  the  first  round  of  a 
High  Court  action  seeking 
changes  in  government  regu- 
lations restricting  volumes 
of  unofficial  “grey"  car 
imports  to  the  UK. 

The  court  has  granted  an 
application  by  the  British 
Independent  Motor  Trade 
Association  for  sui  urgent 
judge's  review  of  the  rules. 

Bimta  - comprising  doz- 
ens of  independent,  nan- 
franchised  car  traders  - 
claims  the  government’s  spe- 


cial vehicle  type  approval 
regulations  are  keeping  UK 
car  prices  higher  than  can 
be  justified.  This  is  because 
they  restrict  to  50  per  year 
the  maximum  number  of 
any  single  model  which  can 
be  imported. 

Bimta  claims  consumers 
could  buy  new  and  used  car 
imports  up  to  30  per  cent 
cheaper  if  the  restrictions 
were  lifted  for  independent 
traders. 

The  government  issued  a 
consultative  document  last 
year  indicating  it  was  con- 
sidering lifting  the  numeri- 


cal limits  on  imports  under 
SVTA. 

But  Gavin  Strang,  then  a 
transport  minister,  kept  the 
limits  in  revised  regulations 
published  in  May. 

They  are  again  being 
reviewed  by  John  Reid,  the 
new  minister,  and  Bimta 
said  yesterday  it  believed 
there  was  a prospect  of  the 
limits  being  lifted  before  the 
court  review. 

Carmakers  and  franchised 
dealers,  alarmed  at  the  pros- 
pect of  such  vehicles  under- 
mining the  structure  of  the 
UK  car  market,  are  voicing 


bitter  opposition  to  such 
imports. 

They  say  such  cars  are  full 
of  risks  fin:  consumers,  with 
different  specifications  and 
potentially  much  lower 
resale  values. 

Mitsubishi’s  UK  importer 
has  told  Its  dealers  to  raise 
parts  and  service  prices 
sharply  to  owners  of  grey 
imports.  Other  makers  have 
sacked  some  of  their  fran- 
chised dealers,  themselves 
tempted  to  dabble  in  the 
trade. 

So-called  “grey"  and  “par- 
allel" car  imports  are 


already  accounting  for 
100,000  sales  a year  in  the 
UK.  Most  of  these  are  paral- 
lel imports  - purchased  by 
motorists  exercising  their 
right  to  buy  fully  EU  type- 
approved  new  cars  from 
franchised  dealers  elsewhere 
in  the  EU.  The  remainder  is 
made  up  of  personal  imparts 
- which  are  not  subject  to 
type  approval  regulations  - 
and  the  5,000-8,000  cars  a 
year  currently  imported  by 
traders  under  the  SVTA  reg- 
ulations. 

“We  have  no  quarrel  with 
parallel  imports,”  Christo- 


pher Macgowan,  chief  execu- 
tive of  the  Retail  Motor 
Industry  Federation,  said 
yesterday.  But  he  said  it  was 
"the  height  of  folly”  to  allow 
the  "grey”  trade  to  continue. 

Cars  shipped  under  SVTA 
regulations  do  not  conform 
to  EU  type  approval.  But 
they  can  be  admitted  after 
undergoing  a £160  approval 
process  at  a network  at  gov- 
ernment test  centres.  If  the 
numerical  restrictions  were 
lifted,  industry  analysts  say 
there  could  be  a huge 
upsurge  in  the  volume  of 
such  sales. 


All  eyes  on  referee 
in  match  between 
United  and  BSkyB 

Trade  minister  Peter  Mandeison  loves 
soccer  but  he  is  also  a friend  of  Rupert 
Murdoch's  daughter,  says  David  Wighton 


E-commerce 
'gap  must  close, 
says  minister 


Peter  Mandeison,  the 
chief  industry  minister, 
neatly  sums  up  the 
dilemma  he  will  face  over 
BSkyB’s  bid  for  Manchester 
United,  the  UK’s  richest  soc- 
cer club.  T love  football  and 
I am  a great  supporter  of 
those  who  broadcast  it” 

All  Labour  politicians 
have  to  say  they  love  soccer 
- even  if  they  much  prefer 
the  Royal  Ballet  - and  there 
is  no  doubt  about  Mr 
Mandeison ’s  support  for  the 
satellite  broadcaster. 

But  Mr  Mandeison  will 
have  the  final  say  on 
whether  to  allow  the  £625m 
(Sibn)  bid  to  proceed,  a judg- 
ment that  is  bound  to  upset 
either  soccer  fans  or  BSkyB. 
No  wonder  he  privately 
questions  whether  politi- 
cians should  take  such  deci- 
sions at  all. 

Gordon  Brown,  the  chan- 
cellor of  the  exchequer,  has 
already  signalled  the  govern- 
ment’s interest  in  reviewing 
UK  merger  policy,  which  by 
international  standards 
gives  politicians  unparal- 
leled discretion. 

Mr  Brown  said  in  a recent 
Financial  Times  interview 
that  the  government  wanted 
to  look  at  taking  the  politics 
out  of  competition  policy,  as 
it  has’done  for  monetary  pol- 
icy. 

The  simple  political  attrac- 
tion of  such  a move  is  the 
same  as  that  for  contracting 
out  the  setting  of  interest 
rates:  the  government  can 
distance  itself  from  unpopu- 


lar decisions.  It  would  also 
free  ministers  from  any 
accusations  that  they  are 
compromised  by  conflicts  of 
interest.  Some  critics 
claimed  - when  he  was 
appointed  to  the  trade  and 
industry  department  in  July 
- that  Mr  Mandeison  would 
be  forced  to  step  aside  from 
a number  of  merger  deci- 
sions because  of  his  respon- 
sibility for  London’s  Millen- 
nium Dome. 

But  government  lawyers 
advised  that  he  would  not 
have  to  hand  over  consider- 
ation of  British  Airways’ 
proposed  link-up  with  Amer- 
ican Airlines,  despite  BA’s 
important  support  for  the 
dome.  Arguably!  Mr  Mandel- 
son's  links  with  BSkyB.  also 
a dome  sponsor,  are  closer 
still. 

Mr  Mandeison  is  a friend 
of  Elisabeth  Murdoch,  man- 
aging director  of  BSkyB,  and 
of  Tim  Allan,  BSkyB's  head 
of  corporate  communications 
and  a former  aide  to  the 
prime  minister.  Ms  Murdoch 
is  the  daughter  of  Rupert 
Murdoch,  chairman  of  News 
Corporation,  the  biggest 
stakeholder  in  BSkyB.  City 
competition  lawyers  say 
there  is  a prima  facie  case 
for  Mr  Mandeison  to  step 
aside. 

Government  lawyers 
would  need  to  decide 
whether  Mr  Mandelson’s 
verdict  on  the  bid  could  be 
challenged  by  judicial 
review.  Following  a House  of 
Lords  decision  in  1993.  this 


could  proceed  only  if  a 
judge  decided  there  was 
“real  danger  of  bias”.  Mr 
Mandelson’s  links  with 
BSkyB  might  not  fail  this 
test,  but  a perception  of  bias 
might  remain. 

John  Redwood,  the  chief 
industry  spokesman  for  the 
opposition  Conservative 
party,  insists  that  Mr 
Mandelson's  stepping  down 
would  not  solve  the  problem. 
“The  question  is,  which  min- 
ister would  you  get  to  do  it, 
since  the  whole  government 
is  too  close  to  Mr  Murdoch?” 
he  says.  But.  despite  such 
qualms,  there  would  be 
unease  in  government  about 


removing  political  influence. 

Nigel  Farr,  a competition 
expert  at  Ashurst  Morris 
Crisp,  a London  law  firm, 
has  some  sympathy  for  this 
view  though  he  adds  that 
politicians  are  brought  in 
too  early  in  the  process. 

The  independent  Office  of 
Fair  Trading  scrutinises  any 
bid  worth  more  than  £70m. 
But  the  minister  ran  ignore 
the  OFTs  advice  on  whether 
the  bid  should  he  investi- 
gated by  the  Monopolies  and 
Mergers  Commission.  The 
minister  is  not  invariably 
bound  by  the  MMC  verdict 


BSkyB  bid.  Page  20 


By  DavW  Wgbton, 

Political  Correspondent 

Peter  Mandeison,  the  chief 
trade  and  industry  minister, 
yesterday  pledged  to  use  the 
government's  market  power 
to  boost  electronic  commerce 
and  TP»kp  the  UK  Europe's 
"digital  laboratory". 

He  said  the  government 
had  agreed  to  make  90  per 
cent  of  all  its  routine  pur- 
chases electronically  by  200L 
He  also  promised  early  legis- 
lation to  tackle  some  of  the 
legal  problems  surrounding 
retail  electronic  commerce. 

But  be  told  a London  con- 
ference that  Britain  had  to 
overcome  cultural  barriers 
to  the  take-up  of  digital  com- 
merce that  were  "a  real 
threat  of  UK  competitive- 
ness”. He  pointed  to  surveys 
showing  more  than  a third 
of  people  in  the  UK  cannot 
see  the  benefits  of  digital 
technologies  - more  than 
twice  as  many  as  in  the  US. 

“Too  many  UK  businesses 
are  lagging  behind,”  he  said. 
"Only  49  per  cent  of  UK 
employees  work  for  firms 
with  internet  access  - com- 
pared with  73  per  cent  in 
Japan.  And  only  13  per  cent 
of  UK  businesses  with  a web 
site  use  it  for  on-line  trading. 
Twenty-nine  per  cent  do  so 
in  the  US.” 

Mr  Mandeison  used  his 
first  big  speech  siQQfr  his 
appointment  to  call  for  a 
drive  to  ensure  the  UK  is  a 
world  leader  in  electronic 
commerce.  “By  the  end  of 
this  parliament,  I want  the 
UK  to  be  globally  recognised 
as  the  best  environment  in 
which  to  trade  electroni- 
cally," he  said. 


The  government  had  an 
important  role  in  providing 
the  right  regulatory  frame- 
work he  said.  “It  has  been 
said  of  some  of  our  European 
partners  that  they  prefer 
regulation  to  competition,  hi 
our  view,  this  risks  stifling 
rather  than  stimulating 
innovation.  I believe  in  com- 
petition wherever  possible 
and  regulation  only  where 
necessary,  as  the  opening  of 
the  telecoms  market  demon- 
strated." 

There  would  be  times 
where  no  regulation  at  all 
was  the  most  practical  solu- 
tion. The  consumer  should 
be  "empowered”  by  the  tech- 
nology itself. 

Mr  Mandeison  promised 
early  legislation  to  dear  up 
legal  problems  over  encryp- 
tion and  digital  signatures. 

He  also  announced  that 
the  trade  and  industry 
department  would  publish  a 
report  on  the  Implications  of 
the  convergence  of  telecoms, 
broadcasting  end  the  other 
IT  industries. 

Mr  Mandeison  predicted 
that  the  growth  of  electronic 
commerce  and  the  introduc- 
tion of  the  European  single 
cunency  would  lead  to  a big 
change  in  competition.  "The 
euro  and  the  new  digital 
economy  will  cast  a bright, 
unforgiving  light  on  the 
uncompetitive,"  he  said. 

Bnt.he. added  that  British 
business  was  well-placed  to  , 
take  advantage  of  both.  “I 
want  Britain  to  be  the  test 
bed  for  digital  products  and  I 
services  in  Europe,  so  that 
UK  consumers  have  access 
to  these  first  and  British 
business  can  lead  the 
world.” 


NEWS  DIGEST 

BRUNEI  INVESTMENT  AGENCY 

KPMG  said  nothing  of 
role  in  probe,  court  told 

Prince  Jefri.  the  disaffected  younger  brother  of  the  Sultan 
of  Brunei,  paid  KPMG,  the  Big  Fwe  professional  services 
firm,  £4.8m  ($7.5m)  to  act  for  him  In  a court  case  which 
gave  It  access  to  his  personal  affairs,  the  High  Court  In 
London  was  told  yesterday.  But  when  KPMG  was  later 
called  on  to  act  for  the  Brunei  Investment  Agency  as  it 
investigates  the  financial  affairs  of  the  troubled  Sultanate  ft 
refused  to  divulge  Its  new  role  to  Prince  Jefri,  Mr  Gordon 
Pollock  told  the  court  Prince  Jefri  is  seeking  an  injunction 
that  would  in  effect  stop  KPMG  continuing  to  act  tor  the 
Brunei  Investment  Agency  - the  organisation  that  looks 
after  the  family’s  overseas  interests  and  was  once  headed 
by  Prince  Jefri.  The  case  IS  being  keenly  watched  by 
accountants  and  lawyers  as  ft  explores  the  increasing  diffi- 
culties of  conflicts  of  interest  as  the  professional  services 
sector  consoWates  and  becomes  more  International.  Mr 
Pollock  sad  Prince  Jefri  had  asked  KPMG  whether  it  had 
been  appointed.  "The  answer  was  that  we  are  not  going  to 
tell  you  anything,’  said  Mr  Pollock.  “It  was  a polite  and 
reasonable  letter  and  they  gave  him  the  brush  off." 

Mr  All  Matek,  who  will  put  KPMG’s  case  that  it  not  acted 
improperly,  said  that  the  BIA  has  accepted  that  Prince 
Jefrfs  personal  financial  details  will  remain  confidential. 
The  case  continues.  Jhn  Kelly,  London 


COMPANY  LAW 


Law  urged  for  directors’  duties 

Company  directors*  duties  could  be  set  out  in  legislation 
for  the  first  time  if  the  government  accepts  proposals  pub- 
lished yesterday  by  the  English  and  Scottish  law  commis- 
sions. The  government’s  law  reform  bodies  call  for  a statu- 
tory list  of  duties  owed  by  directors  to  their  companies. 
The  move  follows  widespread  concern  that  the  law  lacks 
transparency  and  directors  duties  are  not  widely  under- 
stood. If  directors  do  not  comply  with  their  duties  they  can 
be  sued,  prosecuted  or  disqualified  from  acting  as  direc- 
tors. The  number  of  directors  disqualifed  each  year  has 
risen  steadBy  since  the  Introduction  of  legislation  in  1986. 
Last  year  the  total  was  1,200.  The  list  proposed  by  the 
commissioners  would  Include  the  main  directors’  duties  - 
such  as  loyalty,  obedience  and  independence  - as  well  as 
a statement  of  the  minimum  standard  of  care,  skill  and  d'rt- 
igence  they  owe  to  their  companies.  Robert  Rice,  London 


PUBLIC  SECTOR  PAY 


Union  chief  predicts  conflict 

The  next  12  months  will  see  a confrontation  between  the 
government  and  public  sector  workers  over  pay  restraint, 
according  John  Edmonds,  Trades  Union  Congress  presi- 
dent "ft  ready  does  look  as  if  we  are  heading  towards  big 
trouble  and  it  is  going  to  be  very  disruptive  for  everybody," 
he  says  In  an  article  in  New  Statesman  magazine  today. 
"We  are  not  looking  for  a fight  but  the  members  feel  they 
are  being  pushed  into  a comer."  Gordon  Brown,  the  chan- 
cellor of  the  exchequer,  is  determined  to  hold  down  the 
level  of  pay  settlements  in  the  public  sector  although  wage 
increases  are  running  twice  as  high  as  the  level  of  private 
sector  deals.  “Industrial  action  does  not  arise  from  one 
year's  grievance,"  says  Mr  Edmonds,  general  secretary  of 
the  GMB  general  union.  "It  arises  from  a rising  sense  of 
grievance  and  frustration,  a feeling  that  we  can't  do  any- 
thing else  about  this  except  industrial  action.  There  is  a 
Greek  tragedy  dement  to  .all  this.'  His.unfon  was  involved 
In  the  infamous  1978-1979  "Winter  of  Discontent"  which 
involved  a public  sector  pay  offensive  against  the  last 
Labour  government 

But  the  prospect  of  a public  difference  of  view  at  next 
week’s  TUC  conference  lessened  last  night  when  the  Trea- 
sury announced  that  Mr  Brown  has  cancelled  his  sched- 
uled speech  to  the  unions  because  he  win  be  visiting 
Japan.  Robert  Taylor,  London 


i 


# 


# 


INFRASTRUCTURE  FUNDING  ACCOUNTING  MOVES  WOULD  MAKE  IT  HARDER  FOR  DEALS  NOTTO^COUNT  AS  GOVERNMENT  DEBT 


STATE  HEALTH  SERVICE 


Public-private  funding  scheme  faces  rule  change 


By  Nicholas  Timmins 
and  Jim  Kotiy 

The  government  yesterday 
accepted  in  principle 
accounting  rules  which  pri- 
vate finance  initiative 
experts  say  will  make  it 
much  harder  for  a range  of 
deals  under  the  scheme  not 
to  count  as  government 
debt 

The  PFI  is  a scheme  to 
attract  private  finance  to 
public  projects. 

Geoffrey  Robinson,  the 
paymaster  general  (a  Trea- 


sury minister),  said  the  gov- 
ernment would  not  apply  the 
new  rules  to  past  deals  or  to 
those  put  out  to  best  and 
final  offers  by  January  1. 
This  decision  means  in  prac- 
tice that  the  change  to  the 
government’s  balance  sheet 
treatment  of  the  deals  will 
not  affect  most  projects 
likely  to  be  commissioned  in 
the  three-year  period  of  the 
government’s  current  spend- 
ing plans. 

But  the  precise  application 
of  the  ruling  would  have  to 
be  worked  out  on  a case-by- 


case basis  that  could  still  see 
projects  counting  as  being 
off  the  government’s  balance 
sheet,  he  said.  "There  is 
plenty  of  life  in  the  PFI  yet," 
Robinson  added. 

The  ruling  issued  today  by 
the  regulator  for  private  sec- 
tor accounting,  the  Account- 
ing Standards  Board,  is  a 
clear  setback  for  the  PFI. 
The  board  believes  the  roles 
are  a radical  departure  from 
the  existing  ones  written  by 
the  Treasury. 

For  projects  to  count  as 
being  on  the  supplier's  bal- 


ance sheet  rather  than  the 
purchaser's  — in  tfris  case 
the  government  - a range  or 
risks.  Including  that  the 
operator  will  not  be  paid  If 
the  facility  is  not  fully  used, 
must  be  transferred.  That 
has  not  applied  to  date  to 
many  hospital  and  prison 
projects,  for  example,  but  is 
much  less  likely  to  affect 
road  and  IT  projects. 

Hedy  Richards,  a PFI 
accounting  specialist  with 
Ernst  & Young  said:  "Under 
these  rules  it  Is  almost 
impossible  to  imagine  how 


you  would  construct  a PFI 
project  so  that  a hospital 
moved  off  the  public  sector 
balance  sheet. 

-I  think  it  will  make  a 
huge  difference  in  all  sorts 
of  PFI  contracts  - especially 
hospitals  and  prisons.  You 
could  construct  projects 
which  moved  them  off  the 
balance  sheet,  but  in  reality 
operators  would  not  sign 
them." 

Specialists  predicted  that 
in  effect  such  facilities 
would  have  to  be  built  "on 
spec”,  effectively  following 


US  practice  in  which  private 
jails  are  built  facing  the 
same  kind  of  commercial 
risk  as  private  hotels. 

But  both  Adrian  Mon- 
tague, head  of  the  Treasury's 
PFI  taskforce,  and  Tim  Pear- 
son, a member  of  the  special- 
ist committee  on  PFI 
accounting  at  the  Confedera- 
tion. of  British  Industry,  the 
employers’  lobby,  argued  the 
new  rules  would  still  require 
detailed  Interpretation  in 
their  application. 

Lex/Page~T9 


Doctors  call  for  10%  wage  rise 

Ministers'  hopes  of  restraining  public  sector  pay  rises  were 
challenged  by  the  doctors’  trade  union  yesterday,  which 
tabled  a dam  tor  "not  less  than  10  per  cent"  and  argued: 
that  the  Independent  pay  review  body  was  under  no  obli- 
gation to  take  account  of  the  government’s  2.5  per  cent 
inflation  target  The  British  Medical  Association  insisted  the 
government  does  not  have  the  power  to  impose  tighter 
guidelines  on  the  review  body  without  the  consent  of 
employees’  representatives.  After  the  comprehensive 
spending  review  in  July,  ministers  announced  changes  to 
the  terms  of  reference  to  all  the  bodies,  which  recommend 
annual  settlements  for  1.3m  public  sector  workers.  They 
must  now  take  account  of  the  government’s  Inflation  tar- 
get, departmental  spending  limits  and  the  need  to  achieve 
the  government  targets  for  output  and  efficiency. 

Dr  Ian  Bogie,  chairman  of  toe  BMA  council,  argued  toe 
bodies  are  not  duty  bound  to  follow  his  guidance.  He 
branded  as  “blackmail*  the  government’s  contention  that 
increasing  spending  on  health  staff  pay  diverts  money 
from  patient  care.  Simon  Buckfoy,  London 


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Royal  Opera  House  threatened  with  closure 


By  Antony  Thomcroft  In  London 

Sir  Colin  Southgate, 
chairman  of  the  Royal  Opera 
House,  Covent  Garden,  yes- 
terday threatened  to  close 
the  venue  in  January  unless 
he  won  agreement  on  new 
working  practices. 

He  aims  to  reach  a deal  on 
staffing  levels  by  October  26. 
The  opera  house  is  due  to 
open  In  December  1999  after 
a £214m  ($353 m)  refurbish- 
ment. 


If  agreement  is  reached 
the  opera  house  Intends  to 
operate  a cost  cutting  year 
until  the  re-opening,  with  no 
opera  performances. 

The  Royal  Ballet  will  only 
perform  on  a Far  East  tour 
and  at  Sadler's  Wells  for  a 
short  season  in  July. 

Sir  Colin  intends  to  save 
money  by  holding  fewer  per- 
formances - just  120  by  the 
Royal  Ballet  in  the  first  year 
and  100  by  the  Royal  Opera, 
a cut  of  a third. 


His  negotiating  position  is 
strengthened  by  the  full 
lwpWng  of  Chris  Smith,  the 
chief  minister  for  culture, 
and  Gerry  Robinson,  the 
chairman  of  the  Arts  Coun- 
cil. 

Alan  Howarth,  a junior 
culture  minister,  attended 
part  of  the  meeting  of  the 
Covent  Garden  board  on 
Tuesday  that  confirmed  Sir 
Colin’s  strategy. 

The  Arts  Council  gives 
Covent  Garden  an  annual 


subsidy  of  approaching  £15m 
a year. 

Sir  Colin  has  asked  for 
nearer  £3Qm  to  operate  the 
new  opera  house  effectively. 
He  will  receive  a much  lower 
sum.  But  as  Covent  Garden 
is  hardly  performing  at  all 
next  year  - and  will  be  run- 
ning a reduced  programme 
after  that  - a higher  subsidy 
is  no  longer  essential. 

The  420-seat  studio  theatre 
in  the  new  Royal  Opera 
House  is  one  casualty  of  the 


new  strategy  and  will  not 
operate  as  planned,  to  return 
for  government  support 
Covent  Garden  will  cut  its 
seat  prices,  except  at  the 
highest  level,  by  around  a 
quarter  on  reopening.  It  will 
also  offer  reduced  prices  on 
Friday  and  Saturday  and 
probably  hold  Sunday  mati- 
nees. 

Sir  Colin  said  yesterday 
that  Covent  Garden’s  deficit 
would  reach  £25m  by  March 
2000  without  the  proposed 


changes.  By  selling  off  retail 
sites  in  the  new  development 
it  was  hoped  to  reduce  this 
to  nearer  £i0m. 

After  one  year  in  the  new 
Royal  Opera  House  he  hoped 
to  break  even,  thanks 
mainly  to  rental  income 
from  the  retail  outlets  on  the 
site. 

The  opera  chorus  will 
probably  be  stood  down  dur- 
ing 1999.  The  new  deal 
depends  on  the  co-operation 
of  trade  unions. 


BRITISH  ASSOCIATION  SCIENTISTS'  ANNUAL  CONFERENCE  HEARS  HYDROGEN-EMITTING  VENTS  MAY  HOLD  KEY 

.■■■■■■■I— — ......  — » ■ —mi  — ii  i M I,  - | ,, v 

Life  may  have  begun  in  an  ocean  floor  Jacuzzi 


By  Thomas  Bartow  In  Cardiff 


Life  on  earth  may  have 
begun  in  a natural  Jacuzzi 
that  bubbled  hydrogen  gas 
up  out  of  the  ocean  floor,  the 
British  Association  was  told 
yesterday. 

Several  hydrogen-emitting 
ocean  vents,  called  black 
smokers,  have  been  discov- 
ered over  the  past  SO  years. 
But  now  one  has  been  dis- 
covered that  gushes  a hun- 
dred times  as  much  hydro- 
gen as  any  other. 


The  sheer  quantity  of 
hydrogen  combined  with  the 
high  temperatures  - more 
than  100°C  around  the  vent, 
350°  C inside  - may  be 
enough  to  trigger  the  reac- 
tions necessary  to  create  life. 

The  vent,  is  the  mid- 
Atlantic  ridge,  was  found 
two  years  ago  by  Chris  Ger- 
man, of  the  Southampton 
Oceanographic  Centre.  Now 
French  researchers,  led  by 
Jean-Luc  Charlcu  of  Eremer 
in  Brest,  have  made  a sub- 
mersible expedition,  to  mea- 


sure the  amount  of  hydrogen 
the  site  produces. 

Joe  Cann,  professor  of 
Earth  Sciences  at  the  Uni- 
versity of  Leeds,  told  the  BA 
annual  conference  yesterday 
that  the  process  could  be 
continuing  today.  "Hydrogen 
has  been  a hot  suspect  for 
the  origin  of  life  and  now  we 
have  a modem  place  where 
life  could  originate  and  per- 
haps is  originating  now,"  he 
said. 

But  if  new  life  is  continu- 
ously being  created  it  would 


be  very  difficult  to  identify. 
It  would  almost  certainly  be 
consumed  immediately  by 
the  myriad  of  other  organ- 
isms that  now  populate  the 
vent 

The  discovery  of  a vent  so 
rich  in  hydrogen  has  re- 
kindled hope  among  scien- 
tists that  they  might  be  able 
to  simulate  in  the  laboratory 
the  reactions  that  led  to  the 
origin  of  life. 

The  discovery  also  pro- 
vides dues  is  the  search  for 
life  on  other  planets.  Also 


speaking  at  the  British  Asso- 
ciation meeting  was  David 
Des  Marais,  an  astrobiologist 
with  Nasa,  the  US  space 
agency.  "Rather  than  going 
to  find  life,  the  key  now  is  to 
find  environments  that 
could  support  life,"  he  said. 

That  means  looking  for 
planets  with  water.  But  it 
also  means  looking  for  plan- 
ets that  are  capable  of  produ- 
cing enough  carbon  dioxide 
and  hydrogen  in  the  atmo- 
sphere to  trigger  the  forma- 
tion of  organic  molecules. 


The  high  carbon  dioxide  con- 
centration in  the  earth’s 
atmosphere  was  a legacy  of 
our  volcanoes.  The  hydrogen 
that  bubbles  up  from  black 
smokers  emerges  through 
rock  produced  by  plate  tec- 
tonics. This  observation  sug- 
gests that  the  origin  of  life 
on  earth  may  be  an  inciden- 
tal result  of  continental 
drift,  implying  this  might  be 
a good  thing  to  search  for  on 
the  surface  of  other  planets 
where  life  may  also  have 
begun. 


<5 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


9 


★ 


CINEMA 

The  harrowing  art 
of  a sentimentalist 


Can  a filmmaker  serve  two 
masters?  Can  he  be  true  to  both 
art  and  commerce?  Steven  Spiel- 
berg's  acclaimed  Saving  Private 
Ryan  is  an  extraordinary  movie 
feat.  It  drags  us  shaking  through 
the  blood  sacrifices  of  a D-Day 
landing:  hauls  us  with  Captain 
Tom  Hanks  and  seven  men  of 
mission  across  war-battered 
northern  France;  and  expires 
after  mighty  action  doings  in  a 
French  village  strewn  with  bod- 
ies and  heroism. 

So  why  do  I feel  as  if  I have 
been  sold  a mutt  in  the  guise  of  a 
mastiff?  The  great  Spielberg 
debate  threatens  to  rage  on  even 
after  Sc/u'hrffer's  List  and  this. 
That  he  is  the  most  gifted  and 
versatile  filmmaker  in  the  world 
scarcely  anyone  doubts.  Who  else 
could  boast  a portfolio  containing 
Jaws,  Close  Encounters  Of  The 
Third  Kind , ET  and  Jurassic 
Park  as  well  as  four  second  world 
war  movies  each  outpunching 
the  last?  And  yet,  and  yet . . . 

Saving  Private  Ryan's  self-con- 
fessed attempt  to  find  a “human 
story"  inside  the  inhumanity  of 
war  worries  me  tram  the  start. 
Surely  the  inhumanity  of  war  is 
the  human  story:  the  cruelty  at 
once  enormous  and  reductive, 
the  waste  of  individual  life  in  an 
expense  of  ideology  or  fanati- 
cism. 

But  Spielberg  and  screenwriter 
Robert  Rodat  want  to  redeem  the 
horror  by  delineating  a struggle 
within  a struggle.  Their  story  is 
the  Hanks  platoon's  attempt  to 
find  the  lone  surviving  brother  of 
three  soldiers  killed  near-simulta- 
neously  in  action.  A mother's 
love  and  needs  must  transcend, 
however  briefly,  the  imperatives 
of  a nation. 

The  film  begins  harrowingly. 
The  first  half  hour  is  a you-are- 
there  blitzkrieg  set  on  Omaha 
Beach:  thudding  bullets,  severed 
limbs,  spilling  guts;  moans,  cries 
and  tears.  It  is  superbly  shot  by 
Schindler's  cameraman  Janusz 
Kaminski.  The  speed  and 
rhythm,  the  very  texture  of  the 
fi linstock,  seem  to  change  with 
each  wincing  second  and  Spiel- 
berg cuts  down  the  sound  once  or 
twice,  reducing  it  to  an  eerie 
white  noise,  to  focus  on  leader 
Hanks's  moments  of  inner  agony. 


This  is  great  movie-making, 
dipping  our  heads  in  war’s  mess 
and  meaninglessness.  Yet  it 
seems  to  have  nothing  to  do  with 
what  follows.  The  remaining  two 
hours  hover  dismayingly 
between  subgenres  and  stand- 
points. as  if  Saving  Private  Ryan 
Is  uncertain  whether  to  be  an 
endangered-patrol  action  movie 
or  a futility-of-war  art  movie. 

The  characters  occasionally 
ask  the  very  question  on  the 
audience’s  mind.  Why  risk  their 


SAVING  PRIVATE  RYAN 

Steven  Spielberg  . 

COLBIN  BEllE 

Des  McAnuff 


L A VIE  DE  JESUS 

Bruno  Dumont 


BABYMOTHER 

Julian  Henriques 


lives,  let  alone  bypass  broader 
geo-patriotic  duty,  to  rescue  the 
arbitrary,  heraldic  figure  of  an 
only  surviving  son?  (Surely  some 
of  them  are  only  sons  too,  with  or 
without  help  from  war-bereave- 
ment?) 

No  convincing  answer  comes 
and  we  suspect  we  know  the  real 
one.  For  Spielberg  and  Universal 
Pictures  it  is  better  six-handker- 
chief material  to  show  Tom 
Hanks  battling  to  save  Matt 
Damon  - yes.  it  is  he,  though 
cast  before  Good  Will  Hunting 
made  him  a star  - than  to  show 
one  mass  of  people,  the  Allies, 
battling  to  defeat  another,  the 
Axis,  with  nothing  for  popcorn- 
eaters  to  identify  with  but 
abstractions  like  freedom,  peace 
and  democracy. 

Those  abstractions,  though, 
and  the  ability  to  think  with 
them,  the  ability  to  perceive  that 
they  do  bear  on  human  fives  and 
emotions,  are  what  distinguish 
people  from  animals.  Spielberg  is 
making  a film  for  those  who  have 
yet  to  make  that  conceptual  leap: 
to  put  it  tersely,  for  simpletons 
and  sentimentalists. 

At  the  same  time  a film  con- 
cerned with  the  way  a vision  of 


individualised  humanity  can 
transcend  the  crudity  of  causes 
and  collectivised  creeds  takes, 
itself,  the  collectivising  short  cut 
of  making  a demon  of  the  main 
German  character  a soldier  who 
kills  sadistically  soon  after  being 
spared  execution,  thereby  allow- 
ing us  all  to  shrug  once  again 
and  say  "Nazis  are  Nazis." 

Spielberg,  though,  saves  the 
most  vitiating  cliche  character 
for  the  American  side,  in  the 
cowardly  observer-youngster  who 
finally  "grows  up".  This  second- 
ary hero,  an  interpreter  played 
by  Jeremy  Davies;  gets  the  film's 
worst  moment  of  banality.  Wit- 
nessing the  escalating  quarrel 
over  whether  to  execute  the  Ger- 
man prisoner  after  a bloody  skir- 
mish, he  says  aloud  as  if  to  the 
heavens,  “What  is  happening fl"  It 
is  a moment  of  pure  rhetoric,  the 
kind  of  italicising  that  went  out 
or  should  have  with  Cecil  B. 
DeMllle. 

The  sadness  is  that  so  much 
misdirection  exists  in  a film  with 
so  much  incidental  greatness.  It 
is  like  being  in  a fine  landscape 
littered  with  tourist  signposts, 
many  pointing  the  wrong  way. 

When  Spielberg  does  some- 
thing by  gut  and  instinct  he  gets 
it  right.  The  death  pains  of  the 
Omaha  Beach  soldiers:  the  poi- 
gnant wordless  scene  of  Mrs 
Ryan  receiving  news  of  her  sons' 
death;  the  sequence  of  an  agon- 
ised bullet  victim  forced  to  lie 
still  in  a street  to  avoid  further 
sniper  fire.  These  moments  have 
a dramatic  exactness  and  an 
imaginative  intensity.  But  when 
Spielberg  feels  the  call  of  the  Uni- 
versal shareholders,  or  perhaps 
the  record-keepers  of  the  all-time 
box  office  Top  Ten  (still  domi- 
nated by  him),  he  gives  us  the 
obvious.  And  his  obvious  can  he 
every  bit  as  crude  and 
reach-me-down  as  anybody  else’s. 

Nigel  Andrews 

Bette  Davis  once  revealed  that 
her  name  was  inspired  by  her 
mother’s  reading  of  Balzac's 
novel  Cousin  Bette,  writes  Martin 
Hoyle.  I wish  she  had  kept  that 
knowledge  to  herself;  for  now  the 
spectre  of  Davis  at  her  most  bale- 


THE ARTS 


Uncertain  whether  to  be  an  endangered-patrol  action  or  a futffity-of-war  art  movie:  Tom  Hanks,  Matt  Damon  and  Edward  Bums  ki  ‘Saving  Private  Ryan1 


ful  hovers  intrusively  over  the 
accomplished  stage  director  Des 
McAnuff  s first  feature  film,  and 
hmtaiigingly  underlines  its  inade- 
quacies. Despite  sumptuous 
underpinning  from  corse  try, 
stays  and  crinolines.  Cousin  Bette 
falls  heavily  on  its  well-uphol- 
stered posterior. 

Davis  would  have  excelled  as 
the  disregarded  poor  relation 
who  ruthlessly  engineers  the 
destruction  of  the  feckless  aristo- 
cratic family  that  patronises  bo-. 
But  Jessica  Lange  merely 
indulges  in  Acting  with  a quiver- 
ing capita]  A,  all  knowing, 
tight-lipped  smiles,  weaving  and 
bobbing  her  head  in  repressed 
eloquence.  Balzac’s  characters 
have  their  reasons;  these  cine- 
matic shadows  have  none  - no 
depth,  no  personality,  no  motiva- 
tion. 

There  era  initial  hints  of  black 
comedy.  “Your  beauty  benefited 
all  of  us,"  murmurs  Bette,  com- 
forting the  angelic  Adeline  (Ger- 
aldine Chaplin)  on  her  deathbed. 
"You  tried  to  drown  me,"  her 
cousin  dreamily  replies.  But  the 


script  swerves  between  styles 
and  the  direction  leaves  every 
actor  to  fond  for  himerif- 

Hence  Hugh  Laurie  doing  his 
eccentric  upper-class  act;  Bob 
Hoskins  in  curly  wig  and  tartan 
trousers  (it  is  the  1840s);  and 
Kelly  Macdonald  from  Trainspot- 
ting, an  embarrassment  in  the 
most  excruciating  piece  of  mis- 
casting since  Dame  Flora  Robson 
donned  blackface  as  mammy  to 
Ingrid  Bergman’s  Creole  countess 
in  Saratoga  Trunk.  Some  of  the 
English  actors  (Hoskins,  Simon 
McBurney)  mysteriously  assay 
American  accents.  Elizabeth 
Shoe’s  grande  harizantale  looks 
and  sounds  far  too  modern  as  she 
raucously  mangles  La  Ferichole’s 
“Je  t’adore,  brigand"  a good  20 
years  before  Monsieur  Offenbach 
composed  it.  In  fairness,  the 
score  provides  a sense  of  style  - 
snatches  of  Bellini,  Mendelssohn 
and  others,  both  as  themselves 
and  in  pastiche  - that  the  rest  of 
the  film.  aB  dressed  up  with 
nowhere  to  go,  singularly  lacks. 

At  first  glance,  La  vie  de  Jfeus 
looks  like  earthy  realism  In  com- 


parison. In  foct  it  is  rigorously 
formalised:  not  merely  austere, 
spare  and  elliptical  (Bresson  is 
the  obvious  comparison)  hut 
made  up  of  innumerable  three- 
fold sequences  of  establishing 
scenic  shot,  dialogue  and  epi- 
logue-Uke  scenic  shot,  repetitive 
in  rhythm,  cumulative  in  mood, 
both  stifling  and  ominous. 

Freddy  Is  an  epileptic  teenager 
in  small-town  France.  He  lives 
with  his  mother,  hangs  around 
with  his  unemployed  mates,  has 
sex  with  the  lovely  Marie,  is 
prompted  to  mockery  of  “wogs" 
by  the  presence  of  Arab  immi- 
grants. Sexual  jealousy  erupts  in 
violence.  Some  have  detected  the 
theme  of  redemption  in  the  film. 
I saw  none  in  a bleak,  stately 
depiction  of  sacrifice  to  the  long 
littleness  of  dehumanised  modern 
life. 

The  casting  of  unpolished  non- 
professionals is  balanced  by  the 
director's  almost  ritualistic  emo- 
tional economy.  Laviede  Jdsus  is 
infinitely  more  stylised  than 
Cousin  Bette,  for  all  its  swearing 
and  graphic  sex  (body  doubles 


were  used).  Symbolism  is  obvious 
but  effective.  Even  in  conversa- 
tion the  characters'  eyes  stray 
helplessly  to  the  ever-present 
television.  Freddy  tries  to  teach 
his  caged  finch  to  sing  with  the 
help  of  taped  birdsong.  Not  an 
easy  film,  but  a compelling  one. 

As  social  realism  it  misses  out 
on  one  factor.  So  does  Baby- 
mother,  set  in  the  reggae  world  of 
raving  Harlesden.  Strange,  since 
blighted  rural  youth  and  the 
breathless  hedonism  of  inner-city 
funk  have  drugs  in  common.  To 
make  films  in  the  late  90s  about 
the  bored,  purposeless  young  or 
the  obsessively  clubbing  young 
without  mentioning  drugs  is  like 
studying  the  world's  contempo- 
rary sexual  habits  without  men- 
tioning Aids.  This  reservation 
apart,  Julian  Henriques’  jolly 
fable  of  three  girls  making  it  as  a 
group  has  vitality,  enthusiasm 
and  engaging  performances.  The 
Arts  Council  contributed  fund- 
ing. the  Harlesden  reggae  scene 
being  more  your  establishment 
culture  in  cool  Britannia  than, 
say,  the  D’Oyly  Carte. 


David  Hare:  only  in  the  last  live  minutes  does  he  become  the  masterful  performer  'Via  Dolorosa*  needs  PtasOak  Muir 


A writer’s  report  from  the  front 


azine.  Or  by  BBC  Radio  4,  as  a 
special,  95-minute  edition  of 
Prom  Our  Oum  Correspondent. 
Via  Dolorosa  is  not  a play;  it  is 
good  journalism,  a little  too 
charming  at  times,  a little  too 
regular  with  the  Bhrewd  jokes, 
but  absolutely  interesting  at 
every  turn,  ruminative,  intelli- 
gent and  humane. 

Daldry  has  staged  it  as  if  it 


often  admirably  relaxed  - 
appears  over-choreographed  in 
each  movement;  there  are  several 
gestures  too  many  per  sentence, 
most  of  them  thrown  out  from 
stiff  elbows,  and  few  of  them 
spontaneous  in  manner.  To  the 
ears  - though  he  delivers  his 
long  monologue  from  memory  - 
be  sounds  as  if  he  were  reading  a 
script  and  had  not  learnt  how  to 


'Via  Dolorosa’  is  not  a play;  it  is  good 
journalism  - a little  too  charming  at  times, 
but  absolutely  interesting  at  every  turn 


THEATRE __ 

hjsmwDmki 

Via  Dolorosa 

Royal  Court  Downstrire, 

Duka  of  Yorks,  London  WC2 


David  Hare  is  a playwright,  but 
his  latest  performance  piece,  Via 
Dolorosa,  is  not  a play.  He  is  not 
an  actor,  but  he  is  its  sole  per- 
former. The  performance  is  there- 
fore a paradox.  Perhaps  we  are 
expected  to  find  it  more  real, 
more  sincere,  than  theatre  usu- 
ally Is.  The  opposite  proves  true. 
The  problem  with  David  Hare,  as 
directed  by  Stephen  Daldry,  is 
that  he  looks  and  sounds  more 
artificial  than  many  actors  would 
if  delivering  the  same  lines. 

Too  bad:  Via  Dolorosa  is  the 
result  of  a Royal  Court  commis- 
sion (supported  by  the  British 
Conned)  to  visit  Israel  and  Pales- 
tine for  the  first  time  and  to 
write  in  response.  The  strange 
thing,  however,  is  that  it  sounds 
as  if  it  bad  been  commissioned 
by  the  canny  editor  of  some  mag- 


were a Theatrical  Event:  as  if  the 
last  thing  we  needed  to  attend  to 
was  the  contemplative  outpour- 
ings of  Hare’s  mind,  and  as  if  we 
needed  to  be  jollied  through  this 
poetic  lecture  with  the  aid  of 
external  factors.  Thus,  to  the 
eyes,  Hare  - though  he  has 
learnt  how  to  stand  rooted  to  the 
spot,  feet  unshifting,  for  minutes 
on  end,  and  though  his  bands  are 


let  it  breathe. 

Daldry 's  designer,  lan  Mac  Neil, 
and  lighting  designer,  Rick 
Fisher,  transform  the  beautifully 
empty  stage  space  with  a couple 
of  coups  de  theatre.  But,  like 
Hare's  own  stage  behaviour, 
these  neither  create  a world 
around  Hare  nor  turn  him  into 
his  own  world.  Only  in  the  last 
five  minutes,  suddenly  caught  by 


side-lighting,  does  Hare  become 
the  masterful  performer  that  Via 
Dolorosa  needs  throughout;  only 
then  do  his  own  mind  and  voice 
become  - as  they  should  have 
been  all  along  - all-encompass- 
ing. 

Via  Dolorosa  has  just  been  pub- 
lished, in  tandem  with  Hare's 
1996  lecture  "When  Shall  We 
Live?".  It  will  be  good  to  read  it, 
away  from  the  artful  and  arty 
atmosphere  created  at  the  Royal 
Court  But  Hare  is  at  his  least 
comprehensible  when  he  tells 
you  what  his  plays  mean:  though 
I saw  Amy’s  View  three  times  and 
with  increasing  pleasure,  it 
makes  no  sense  to  me  to  hear 
from  its  author  that  it  “is  about 
how  we  no  longer  expect  society 
to  validate  our  beliefs".  Hare  is 
better  at  telling  us  about  the 
world  than  about  himself;  and  he 
is  best  when  he  creates  - as  only 
in  the  brief  finale  of  Via  Dolorosa 
- a world  on  stage. 


Flay  text  Is  pubBshad  by  Faber  & 
Faber,  £659. 


INTERNATIONAL 

Arts 

Guide 


AMSTERDAM 

DANCE 

Hat  Muzfektheater 
Tek  31-20*51  6311 
Dutch  National  Ballet: 
Carison-Humphrey-Tharp. 
Programme  of  worts  by  the  three 
choreographers.  Includes  Carolyn 
Carlson's  Stow,  heavy  and  blue 
and  Twyla  Tharp's  In  the  Upper 
Room;  Sep  10, 11. 13. 14. 15 

OPERA 

Netherlands  Opera,  Hot 
Muziektheater 

Teh.  37-20-557  8911 
G^terdammerungr,  by  Wagner. 
New  staging  by  Pierre  Audi, 
conducted  by  Hartmut 
Haenchen.  Cast  includes  Heinz 
Krose.  Jeannine  Altmeyer  and 
Henk  Smtt:  Sep  12, 16 


basle 

EXHIBITION 
Kunatmuseum 
Tek  41-61-271  0828 

www.kunstnwseumbasBl.ch 
A"  House  for  Cubism:  the  Raoul J 
U Roche  Collodion.  Display  of  . 
works  collected  by  the  Swiss 


banker  and  given  to  the  museum 
in  the  1950s  and  1960s.  Includes 
works  by  Picasso,  Braque.  L&ger, 
Gris,  Le  Corbusier  and  Qzenfant; 
to  Oct  11  . 


BEIJING 

OPStA 

The  Forbidden  City 
wvm.hjrandot-on-site.com 
Turanctot  by  Puccini.  Conducted 
by  Zubin  Mehta  in  a staging  by 
Zhang  Yimou,  With  the  Maggio 
Musicals  Rorentino;  Sep  10. 11, 
12,  .13 


COLOGNE 

CONCERT 

PhUharmonie 

Los  Angeles  Philharmonic: 

conducted  by  Esa-Pekka 

Salonen  in  works  by  Sibelius, 

Salonen  and  Stravinsky;  Sep  IQ 


EDINBURGH 

OPERA. 

Edinburgh  Festival  Theatre 
Teh  44-131-529  6000 
The  Magic  Flute:  by  Mozart 
Scottish  Opera  production  by 
Martin  Duncan,  conducted  by 
Rtahard  Femes;  Sep  is 


FORTWORTH 

EXHIBITION 
Kknbeti  Art  Museum 
Tel:  1-817-3328451 
www.timbeOart.org 
Modernism  - The  Art  of  Design 
1630-1940:  works  from  the 
Norwest  collection.  Ranges  from 
the  British  Arts  and  Crafts 
movement  and  Art  Nouveau  to 


the  Bauhaus  and  Art  Deco;  to 
Sep  13 


FRANKFURT 

CONCERTS 

Atte  Oper 

Teh  49-69-134  0400 

• Los  Angeles  Philharmonic: 
conducted  by  Esa-Pekka 
Salonen  in  works  by  Salonen  and 
Bruckner  Sep  12 

• Radio  Symphony  Orchestra 
Frankfurt:  conducted  by  Leonard 
Sfertkin  in  works  by  Enescu, 
Barber  and  Schumann.  With 
soprano  Linda  Hoherrfeid;  Sep 
10,11 

OPERA 
Oper  Frankfurt 
Tel:  49-63-21237  999 
www. frankfwl-husiness.de/oper 

• La  Perichoie:  by  Offenbach. 
Conducted  by  Catherine 
Ruckwardt  in  a staging  by  Peter 
Escftberg.  with  designs  by  Peter 
Pabsti,  Sep  12 

• La  Traviata:  by  Verdi,  in  a 
staging  by  Axel  Corti;  Sep  11, 13 


LONDON 

CONCBTTS 

BBC  Proms,  Royal  Afoert  Hafl 
Teh  44-171-589  8212 

• SBC  National  Orchestra  of 
Wales:  conducted  by  Mark  Elder 
in  works  by  Stravinsky, 
Szymanowski,  Debussy  and 
HolsL  With  the  BBC  National 
Chorus  of  Wales  and  soprano 
Vaidine  Anderson;  Sep  IQ 

• Chamber  Orchestra  of 

Europe*,  conducted  by  Nikolaus 
Harnoncourt  in  Beethoven's 
Mtssa  Solent  is.  VJSh  the  Arnold 


Schoenberg  Choir;  Sep  11 
• The  Last  Night  of  the  Proms: 
Andrew  Davis  conducts  the  BBC 
Symphony  Orchestra,  Chorus 
and  Singers  in  a programme 
including  the  European  premiere 
of  Hugh  Wood’s  Variations  for 
Orchestra,  works  by  Gershwin, 
Thomas  Adfes  and  Pany.  With 
baritone  Thomas  Hampson  and 
piano  soloist  Jean-Yves 
Thibaudet;  Sep  12 

EXHIBITION 
British  Museum 
Teh  44-171-636  1SSS 
Persian  and  Indian  Manuscripts 

and  Paintings:  toe  Royal  Asiatic 
Society  celebrates  its  175th 
anniversary  with  an  exhibition  of 
objects  rarefy  seen  by  the  pubSc. 
The  high  fight  is  the  Book  of 
Kings  made  for  Muhammad  Juki, 
one  of  toe  great  Persian 
manuscripts  of  toe  15th  century, 
to  Sep  13 


LOS  ANGELES 

OPERA 

L A.  Opera,  Dorothy  Chandler 
Pavilion 

Tek  1-213-972  8001 
mmJaapeea.org 

• Carmen:  by  Bizet  Washington 
Opera  production  by 
ArwMargrst  Pettersson, 
designed  by  Lennart  MSrk.  The 
conductor  is  Bertrand  de  BiHy 
and  toe  title  role  is  sung  by 
Jennifer  Larmore;  Sep  11, 13, 16 

• Werther.  by  Massenet 
Conducted  by  Emmanuel  Joel  in 
a co-production  with  Thtflro  du 
Capitols  Toulouse  staged  by 
Nicolas  JoS  and  designed  by 
Hubert  Montoup.  The  title  role  is 


sung  by  Rambn  Vargas: 
Sep  12, 15 


LUCERNE 

CONCERTS 

International  Festival  of  Music 
Tel:  41-41-226  4400 
vmw.LucsmeMusic.ch/ 

• Chicago  Symphony 
Orchestra:  Daniel  Barenboim 
conducts  works  by  Strauss,  Berg 
and  Tchaikovsky;  Sep  11 

• Chicago  Symphony 
Orchestra:  Daniel  Barenboim 
conducts  works  by  Schoenberg, 
Wagner  and  Beethoven;  Sep  12 
0 Vienna  Philharmonic 
Orchestra:  conducted  by  Lorin 
MaazaJ  in  works  by  Mozart  and 
Bruckner;  Sep  14 


MADRID 
EXHIBITION 
Fundacto  la  Coixa 
Tek  34-1-435  4833 
Lucio  Fontana  (1899-1968): 
Retrospective  of  toe  Italian 
pioneer  of  conceptual  and 
multimedia  art  to  Sep  13 


MUNICH 

CONCERTS 
Phtiharmonie  Gastelg 
Tek  49-89-5481  8181 

• Chicago  Symphony 
Orchestra:  conducted  by  Daniel 
Barenboim  in  works  by  Wagner 
and  Mahler:  Sep  14 

• Munich  Philharmonic 
Orchestra:  conducted  by  Rafael 
Fruhbeck  de  Burgos  to  a 

programme  infcuding  worts  by 

Manuel  de  Falla,  RlmskV 
Korsakov  and  Ravel; 


Sep  10, 11 


NEW  YORK 

EXHIBITIONS 

Metropolitan  Museum  of  Art 
Tel:  1-212-879  5500 
www.metmuseum.org 

• Letters  in  Gold:  Ottoman 
Calligraphy  from  the  Sakip 
Sabanci  Collection,  Istanbul.  70 
objects  ranging  from  the  15th  to 
toe  20th  century.  Includes 
manuscripts,  panels  and  scrolls; 
from  Sep  11  to  Dec  13 

• The  Nature  of  Islamic 
Ornament,  Part  II:  Vegetal 
Patterns.  Second  in  a four-part 
series  on  Islamic  ornament  from 
the  9th  to  the  IBth  century. 
Includes  rare  brocades  and 
carpets;  from  Sep  10  to  Jan  10 

Whitney  Museum  of  American 
Art 

Tel:  1-212-3272801 
Mark  Rothko:  major  retrospective 
of  the  American  abstract  artist 
including  bans  from  Europe  and 
Japan.  The  100  works  on  display 
encompass  all  phases  of 
Rothko’s  career,  from  the  late 
1920s  to  1970;  from  Sep  10  to 
Nov  29 

OPERA 

New  York  City  Opera,  New 
York  State  Theater 
Tel:  1-212-870  5570 
www.nycopera.com 

• Parten ope:  by  Handel. 
Directed  by  Francisco  Negrin  and 
conducted  by  George  Manahan. 
Lisa  Softer  sings  the  title  role; 
Sep  11, 16 

• Tosca:  by  Puccini.  Production 
by  Mark  Lamas  in  association 


with  GGmmerglass  Opera. 

George  Manahan  conducts  and 
the  cast  includes  Isabelle  Kabatu, 
An ot onto  Nagare  and  Mark 
Delavan;  Sep  10. 13, 15 


VIENNA 

CONCERTS 

Musikverein 

Tel:  43-1-5058  6810 

• Chicago  Symphony 
Orchestra:  conducted  by  Daniel 
Barenboim  in  works  by 
Schoenberg  and  Mahler,  Sep  15 

• Chicago  Symphony 
Orchestra:  conducted  by  Daniel 
Barenboim  in  works  by  Wagner, 
Berg  and  Tchaikovsky;  Sep  16 


TV  AND  RADIO 

• WORLD  SERVICE 

BBC  World  Service  radio  for 
Europe  can  be  received  in 
western  Europe  on  medium  wave 
648  kHZ  (463m) 

EUROPEAN  CABLE  AND 
SATELLITE  BUSINESS  TV 

• CNN  International 
Monday  to  Friday,  GMT: 

06.30:  MoneyBrto  with  Lou  Dobbs 

13^50:  Business  Asia 

1920:  World  Business  Today 
22J0fk  World  Business  Today 
Update 

• Businsss/Markst  Reports: 
05:07;  06:07;  07.-07;  0820;  0920; 
1020;  1120;  11:32;  1220;  1320; 
1420. 

At  0820  Tanya  Beckett  of  FTTV 
reports  live  from  L1FFE  as  the 
London  market  opens. 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


COMMENT  & ANALYSIS 


LIONEL  BARBER 

EUROPEAN  VIEWPOINT 


Farewell,  Brussels 


The  FT's  departing  bureau  chief  in  Brussels  looks  back  at  what 
the  EU  has  achieved  and  forward  to  what  it  still  needs  to  do 


An  Irish  diplomat  recalls 
sitting  in  a restaurant  in 
Phoenix,  Arizona.  A friendly 
waitress  asked  him  what  he 
did  for  a living.  He  replied 
that  he  worked  for  the 
European  Community. 
Puzzled  silence.  “Oh,  you 
mean  like  the  Jewish 
community?" 

I Gist  heard  that  story  six 
years  ago.  just  before 
leaving  Washington  for  a 
new  job  in  Brussels.  In  those 
days,  it  was  easy  to  make 
jokes  at  the  expense  of  the 
anonymous  EC,  then 
enfeebled  by  currency  crises 
and  the  see-saw  drama  to 
ratify  the  Maastricht  treaty, 
and  the  wars  of  Yugoslav 
succession. 

Today,  the  European 
Community  has  a grander 
name:  the  European  Union. 
Ordinary  citizens  still  regard 
the  EU  and  its  institutions 
as  aloof,  remote  and  elitist 
Ignorance  and  prejudice 
abound.  Yet  “Brussels"  and 
“Europe"  impinge  on  the 
public  consciousness  to  a 
degree  unimaginable  in  the 
dog-days  of  1992-3. 

Forget  for  a moment,  the 
imminent  launch  of 
economic  and  monetary 
union.  Even  without  it  the 
EU  has  acquired  critical 
mass.  Fifteen  members 
today,  as  many  as  12 
countries  queuing  to  join 
tomorrow.  This  is  a club 
which  people  want  to  join 
(welcome  back,  Malta!). 

A culture  of  cooperation 
has  become  embedded 
among  the  nation  states  of 
western  Europe  which  goes 
beyond  ministers  jetting  in 
and  out  of  Brussels.  Food 
safety,  mad  cows,  financial 
services,  asylum  and 
immigration,  trade,  «nrf1  yes, 
taxation.  The  ElFs  writ  runs 
ever  wider. 

Europe  is  no  longer 
foreign  policy  in  the 
traditional  sense.  It  has 
become  an  extension  of 
domestic  policy  which  can 


make  or  break  governments. 
John  Major  fell  largely 
because  of  the  Conservative 
party’s  civil  war  over 
Europe’s  single  currency. 
Romano  Frodi  exploited 
Italy’s  desire  to  be  at  the 
heart  of  Europe,  brilliantly 
engineering  his  country's 
entry  into  Emu  last  spring. 

Explaining  why  Europe 
matters  is  a test  for  political 
leaders  who  are  loath  to 
admit  bow  much  power  has 
Bowed  from  national 
parliaments  to  collective 
decision-making  in  Brussels. 
Too  many  are  still  tempted 
to  play  on  fears  of  mad-cap 
EU  plans  to  harmonise. 
Remember  rumours  about 
the  one-size-fits-all 
Euro-condom? 

Despite  these  myths,  the 
EU  has  acquired  momentum 
- especially  with  the  project 
many  predicted  would  never 
happen.  Two  and  a half 
years  ago,  I had  my  own 
doubts  about  the  timetable 
for  monetary  union.  These 
were  widely  shared  not  Just 
in  this  newspaper  but  among 
the  central  bankers  charged 
with  TwaWwg  it  a success. 


Emu  offers  many  lessons 
about  European  integration. 
The  most  striking  are  the 
importance  of  covenants 
entered  into  at  an  EU  level 
and  the  determination  of 
France  and  Germany  to 
respect  such  treaty 
commitments.  Less  obvious, 
is  tbe  ElTs  capacity  to 
< improvise  in  crisis. 

In  August  1993.  the 
European  exchange  rate 
mechanism  - supposedly  the 
vehicle  of  guaranteeing 
currency  stability  in  the 
run-up  to  Emu  - buckled 
under  a wave  of  speculation. 
But  central  bankers  and 
finance  ministers  agreed  to 
create  a new  £RM  with 
wider  margins  of 
fluctuation.  Tbe  move  saw 
off  the  speculators  and  saved 
Emu. 

One  further  point  Most 
countries  involved  in  Emu 
are  driven  by  a sense  of 
strategy.  Thus,  the  German 
policy  elite,  for  from  being 
reluctant  converts  to 
surrendering  the  D-Mark, 
grasped  that  Emu  was  the 
implicit  price  for  German 
unification  and  an  EU 


commitment  to  enlarge  to 
Germany’s  Vriniprtonfl  in 
central  and  eastern  Europe. 
Many  later  realised  that 
Emu,  through  its 
competitive  impact,  could 
also  act  as  a tool  for 
industrial  regeneration. 
From  the  standpoint  of 
France,  monetary  union  has 
always  been  a device  for 
containing  German  power. 
The  creation  of  a European 
Central  Bank  offers  the 
French  (and  the  rest  of 
Europe  V a once-in-a- 
generafdon  chance  to  break 
the  Bundesbank's  de  facto 
role  in  setting  Europe- wide 
monetary  and  interest  rate 
policy.  French  politicians  on 
the  left  and  the  right  have 
stuck  doggedly  to  this 
long-term  objective, 
confounding  British 
predictions  that  tbe 
economics  of  Emu  were 
wrong-headed  and 
dangerous. 

Emu  is  indeed  a high-risk 
enterprise,  especially  now 
that  U countries  will  join 
the  first  wave  on  January  L. 
1999.  But  a smaller  de  facto 
D-Mark  bloc,  though  safer, 
would  have  been  much  more 
divisive.  The  same  forces  of 
improvisation  will  come  to 
tbe  fore  as  members  of  the 
euro-zone  seek  to  make  Emu 
an  economic  as  well  as  a 
monetary  union. 

As  for  the  British,  they 
misread  European  intentions 
over  Emu  - not  for  the  first 
time.  Britain's  relationship 
with  Europe  since  1945  has 
been  a catalogue  of  missed 
opportunities.  British 
ministers  often  behave  like 
educated  soccer  hooligans 
with  their  European 
colleagues.  John  Major’s 
I •‘beef  war”  was  comically 
flitile,  and  infinitely 
depressing.  The  new  Labour 
government  has  changed 
tone,  but  it  took  nine 
months  for  Tony  Blair  to 
discover  that  he  had  no 
European  policy.  Now  the 
talk  centres  on  institutional 
reform:  a European  version 
of  the  constitutional  changes 
that  Mr  Blair  plans  for 
Britain  so  that  power  comes 
closer  to  the  people.  But 
British  policy  remains 
essentially  defensive. 

Mr  Blair  talks  a good  game 
about  Britain  playing  a 
leading  role  In  Europe,  but 
Britain  has  chosen  to  stay 
outside  Emu,  and  there  is  no 
realistic  prospect  of  signing 
up  before  2002-2003.  Labour 
is  still  suspicious  about 


Pfizer  fo 

B EUROPE# 


Healthcare  Risks  for 


zer  rorum  \ Health  Benefits 


BT  WILLIAM  W.  LOWRANCE.  PHXl 


A pioneer  in  "risk”  studies  argues  that 
thinking  about  health  care  in  terms  of 
risks  and  benefits  is  crucial  for  sound 


healthcare  decisions. 


Whether  to  have  a mole  removed. 
Whether  to  bother  to  have  a child's  aching 
cars  checked.  Whether  to  take  the  flu  vac- 
cine. Whether,  in  coping  with  prostate  en- 
largement to  undergo  surgery,  take  a long 
course  of  medication,  or  wait  Whether,  at 
healthy  menopause,  to  enter  into  hormone 
replacement  therapy.  Whether  to  start 
taking  cortisone,  or  to  stop  taking  corti- 
sone. We  all  make  decisions  Eke  these,  for 
ourselves  and  for  others,  all  the  time. 
Health  cart?  providers,  regulators,  and  in- 
surers make  similar  decisions  on  behalf  of 
both  individuals  and  society. 

In  making  choices  about  health  inter- 
ventions. attending  to  some  fundamentals 
such  as  those  outlined  here  can  make  for 
decisions  that  are  “better  bets"  — decisions 
that  offer  better  prospects,  constitute  more 
worthwhile  expenditures  of  effort  and 
resources,  and  more  reliably  promise  relief 
and  hope. 

Comport  the  intervention  rot  against 
the  target-illness  risk,  weigh  the  benefits 
against  the  risks,  end  seek  net  risk 
reduction.  Surely  the  disease  is  worse  than 
the  proposed  cure?  Obviously,  if  an  inter- 
vention doesn't  promise  overall  benefit  on 
balance,  it  should  not  be  undertaken.  But 
nor  should  an  action  be  avoided  simply 
because  it  has  some  downside.  We 
promote  diphtheria — tetanus— pertussis 
vaccination,  even  though  it  has  some 
adverse-effect  risks  for  a few  children, 
because  it  virtually  eliminates  the  risks  of 
those  illnesses  for  the  great  majority  of  the 
children  vaccinated  (and  besides,  by 
reducing  the  contagion  it  even  helps 
protect  those  who  are  un  vaccinated). 

All  health  interventions  have  residual 
risks.  Even  wearing  contact  lenses,  or 
haring  a dental  cavity  filled,  carries  some 
small  risk.  Always  there  will  be  risks  for  a 
few  people  haring  special  characteristics, 
such  as  unsuspected  allergies,  and  there 


will  be  risks  from  error,  accident,  or  abuse. 
But  the  only  reason  to  take  a healthcare 
action  is  to  try  to  come  out  better-off.  net. 
in  the  long  run  — reducing  the  targe HUness 
risk,  and  suffering  minimal  negative 
side-effects. 

Base  healthcare  decisions  on  “in- 
formed handicapping."  Each  of  us  begins 
life  with  unique  physical  and  social  lots. 


;•  Viewing  health  care  in 
’ benefit/risk  terms  can 
help  assess  the  quality 
.*  of  care  and  the  relative 
•5  payback  iron)  the 
:/  myriad  options  in  tbe 
prospectus  of  healthcare 
’ investments  available  to 
. individuals  and  society. 


and  these  lots  — genetic  makeup,  en- 
vironment, lifestyle  options,  hazard 
exposures,  defences,  compensations  — 
are  continuously  modified  as  we  thread 
our  way  through  the  incidents  in  the 
lottery  of  life.  Some  we  can  influence, 
some  we  caa'L  As  we  try  to  intervene  in 
the  stream  of  chancy  health-events,  we 
must  take  the  odds  and  stakes  into 
account  as  best  we  can. 

Estimating  the  risks  and  the  life  and 
resource  stakes  invokes  both  elaborate 
scientific  risk  assessment  and  persona] 
information  gathering.  For  some  risks, 
much  can  be  known:  for  others,  little.  Tbe 
most  promising  choices  must  be  sought, 
despite  uncertainties. 

Not  everyone  can  be  expected  to 
benefit  equally,  and  benefits  may  accrue  to 
others  besides  the  person  who  directly 
receives  the  care.  The  challenge  for  society 
is  to  learn  from  collective  experience,  refine 
the  technical  possibilities,  and,  within 
societal  constraints,  tailor  interventions  to 
individuals’  needs  and  wants. 

Take  account  of  values  as  adi  as  facts. 
A decision  over  whether  a risk  is  accept- 


able, is  a value  judgement  Although  values, 
preferences,  fears,  and  willingnesses  can  be 
appraised  in  systematic  ways,  they  are  not 
generated  by  facts  alone.  Even  facing 
identical  risk  facts,  people  may  choose 
differently.  Healthcare  decisions  must 
respect  attitudes  and  values. 

Regard  healthcare  interventions  as 
investments  in  effort  and  expense,  not  Just 
as  sunk  costs.  Healthcare  costs  could 
hypothetically,  after  all.  be  reduced  to 
zero.  So  — just  as  with  fire  protection, 
hurricane  prediction,  pension  fond,  and 
all  other  investments  — the  question 
should  be;  What  return  can  be  expected, 
and  with  what  degree  of  assurance? 

Appraise  health  outcomes  and  health- 
care quality  in  terms  of  benefit  and  risk. 
All  healthcare  systems,  public  and 
private,  everywhere,  are  striving  now  to 
learn  by  evaluating  actual  experience  in 
health  promotion,  access  to  care,  illness 
prevention,  diagnosis,  therapy,  rehabili- 
tation. and  long-term  support  Specifically 
what  “works,"  for  whom,  under  wbat 
circumstances,  how  well,  at  what  cost? 

Viewing  healthcare  in  benefit/risk 
terms  can  help  assess  the  quality  of  care 
— and.  even,  to  define  what  is  meant  by 
"quality”  — and  the  relative  payback 
from  the  myriad  options  in  the  pros- 
pectus of  healthcare  investments  avail- 
able to  individuals  and  society. 

Willlmii  W.  Lmww  b •coBaoiteB!  « health poBcy, 
braeSt/risk,  tod  medical  Iwoca,  bued  b 

Crara*  Iga  Qn-i  da  Sr-j«.  CH-120I  Gram. 
Swtamirad  luwiraccWpiuUafccB). 


joining  the  Schengen  treaty 
guaranteeing  freedom  of 
movement  but  can  Britain 
really  afford  to  remain  aloof 
from  expanding  cooperation 
on  immigration,  asylum  and 
organised  crime? 

One  area  where  change  is 
clear  is  European  defence. 

Mr  Blair  recognises  that  he 
can  curry  favour  in  Paris  by 
talking  up  the  role  of  the 
EXTs  docile  defence  arm.  the 
Western  European  Union, 
without  triggering  fears  in 
Washington  that  Britain  is 
conspiring  to  undermine 
Nato  or  the  US  military 
presence  in  Europe. 

More  important,  both 
British  and  European 
businesses  are  clamouring 
for  a more  integrated 
European  defence  industry 
to  bridge  the  widening 
technology  gap  with  the 
Americans.  This  timp,  the 
French  are  exposed  as  tbe 
most  sovereignty-conscious 
nation  by  balking  at 
An^Gennan  pressure  to 
put  their  military  industrial 
complex  in  private  hands. 

European  integration  has 
always  been  driven  as  much 
by  commercial  logic  as 
political  inspiration.  Hie 
genius  of  Jacques  Delors  was 
that  he  combined  both  with 
his  1992  single  market 
project.  But  European 
integration  also  reflects  the 
power  of  historical  forces.  . 

The  period  1992-96  marked 
the  first  stage  of  western 
Europe’s  effort  to  shape  a 
new  economic  and  political 
order  after  the  tbe  collapse 
of  communism  Emu  is  one 
building  block:  the  next  is 
the  slow  but  steady 
enlargement  of  the  union 
eastwards. 

| Both  developments  will 
require  an  overhaul  of  EU ' 
institutions  which  will 
involve  further  pooling  of 
sovereignty.  The  nation 
state  will  not  be  abolished 
because  five  centuries  of 
tradition  cannot  be 
expunged  in  five  decades. 

But  it  will  be  transformed. 

The  trick  for  Europe's 
leaders  is  to  catch  up  and 
shape  these  forces  without 
moving  so  for  ahead  of  the 
people  that  all  pretence  at  , 
consent  Is  abandoned.  It  was 
my  privilege  to  watch  this 
hirtoric  process  at  first  I 
hand:  to  be  present  at  the  I 
creation.  I now  look  forward 
to  studying  the  next  steps  at 
one  remove  back  in  London. 


LETTERS  TO  THE  EDITOR 


Fallacy  that  IMF  lacks  funds  to 
respond  to  prospective  crises 


From  Mr  Jim  Saxton. 

Sir.  For  more  than  seven 
months,  Clinton  administra- 
tion nffirinls  have  mis- 
leading  statements  to  the 
American  people  regarding 
the  administration’s  conten- 
tions that  the  International 
Monetary  Fund  is  virtually 
I destitute;  Further,  these  ofB- 
l dais  have  downplayed  the 
1 importance  of  moral  hazard. 
Both  of  these  inaccurate 
claims  were  repeated  in  your 
September  4 editorial, 
"Funding  for  the  IMF”. 

In  responding  to  your 
assertion-  that  the  IMF 
“would  not  have  tbe  where- 
withal to  help”  should  addi- 
tional crises  occur,  it  is  note- 
worthy that  the  US  General 
Accounting  Office  (GAO),  as 
well  as  Off1  managing  direc- 
tor, Michel  Camdessus,  him- 
self,  have  acknowledged  that 
the  IMF  in  feet  does  have 
sufficient  resources  to 
respond  to  prospective  cri- 


ses. Moreover,  leading  cen- 
tral bankers,  sucb  as  Alan 

Greenspan  and  Hans  Tiet- 

meyer.  concede  that  moral 
hazard  certainly  is  a serious 
problem. 

As  for  resource  availabil- 
ity. the  GAO  recently 
reviewed  IMF  finances  at  my 
request  and  presented  its 
findings  at  a recent  Joint 
Economic  Committee  hear- 
ing. The  GAO  agreed  with 
my  conclusions  that  the  IMF 
has  access  to  $43bn  in  quota 
resources.  $32bn  in  gold,  and 
a $23 tm  credit  line.  That 
totals  SSTbn  after  the  IMF's 
share  of  the  money  for  the 
Russian  bailout  is  sub- 
tracted. That  total  does  not 
fully  include  $12.6bn  in 
scheduled  repayments  this 
year  to  the  IMF. 

While  many  unique  factors 
complicate  the  Russian 
banking  situation,  the  famil- 
iar moral  hazard  ingredients 
of  risky  lending,  lax  regukh 


tory  standards,  low  levels  of 
capital  and  government  sup- 
port remain  much  In  evi- 
dence. Research  has  convinc- 
ingly demonstrated  that 
moral  hazard  is  important 
and  that  international  finan- 
cial crises  have  increased  in 
frequency  and  severity  after 
IMF  bailout  practices 
became  commonplace. 

The  bottom  line  is  that  the 
IMF  is  not  destitute,  and 
moral  hazard  remains  an 
important  problem  to  be 
solved.  Should  global  finan- 
cial crises  worsen  before 
November,  it  will  be  surely 
caused  by  the  result  of  the 
IMF's  mistaken  policies  and 
not  its  supposedly  inade- 
quate funding. 


Jim  Saxton, 
chairman. 

Joint  Economic  Committee, 
US  Congress, 

Washington,  DC  20510-6602. 
US 


BNFL  committed  to  reducing  discharges 


From  Mr  John  R.  S. 

Gumness. 

Sir.  In  response  to  Helen 
Wallace’s  letter  (“Small  print 
cannot  let  BNFL  off  the 
hook”,  September  7).  I would 
like  to  reassure  Dr  Wallace 
that  BNFL  is  fully  commit- 
ted to  reducing  its  impact  on 
the  environment  and  has 
already  reduced  principal 
radioactive  substances  in  liq- 
uid discharges  to  about  1 per 
cent  of  levels  20  years  ago. 

We  have  an  obligation  to 


continue  the  clean-up  pro- 
grammes which  are  dealing 
with  the  historic  legacy  of 
the  early  nuclear  pro- 
gramme at  Sellafield.  Waste 
arising  from  these  pro- 
grammes has  to  be  dealt 
with,  meaning  that  some  dis- 
charges would  continue  even 
if  the  ongoing  operations  at 
Sellafield  were  stopped. 

BNFL  recognises  that  the 
OSPAR  agreement  presents 
us  with  demanding  chal- 
lenges. However,  we  will  be 


working  very  hard  in  the 
years  ahead  to  reduce  our 
discharges  even  further,  to 
the  point  that,  in  2020,  they 
will  be  at  levels  where  the 
additional  concentrations  in 
the  marine  environment 
above  historic  levels  are 
close  to  zero. 


John  R.  S.  Guinness, 

i-hairman, 

BNFL. 

Risley,  Warrington, 
Cheshire  WA3  6 AS,  UK 


From  Professor  David 
Flotoer. 

Sir.  I note  from  an  item  in 
the  Lex  column  entitled 
“Fujitsu”  (September  56)  tbe 
following  (perhaps  slightly 
insensitive?)  sentence 
regarding  the  soon-to-be-re- 
dundant  workers  at  the 
Fujitsu  plant  in  the  NE  of 
England:  “It  may  not  have 


been  a job  for  life,  but  for 
some  it  was  a good  one  for 
seven  years,  which  is  a lot 
better  than  nothing.” 

Put  another  way.  they  are 
lucky  to  have  had  a job  at 
all:  stiff  upper  lip.  everyone! 
1 suspect  that  the  writer  of 
those  words  might  view  the 
situation  rather  differently  if 
about  to  be  made  redundant 


him/herself,  owing  to  events 
completely  out  of  his/her 
control;  but  I guess  that  the 
only  way  to  be  sure  that  this 
is  true  would  be  to  perform 
the  experiment. 


David  Flower, 
physics  department. 
Durham  University, 
Durham  DH1  3LE.  UK 


Number  One  Southwark  Bridge,  London  SE1  9HL 


UoneLbarbenoifLcom 


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tetters  ratten  in  Ihe  man  Wemaflonsl  languages.  Fax  0171  873  5S3&  Letters  should  be  typed  and  not  hand  written. 


Same  game,  different  rules 


With  Kenneth  Starr  about  to  file  his  report,  Jurek  Martin  considers  the  parallels 
and  differences  between  Bill  Clinton’s  and  Richard  Nixon’s  travails 


Watergate, 
which  ended 
the  .presidency 
of  Richard 
Nixon  in  August  1974,  was  a 
story  that  unfolded  slowly 
but  developed  the  momen- 
tum of  a runaway  train.  For 
all  the  many  differences 
between  now  and  then  - 
especially  between  the  seri- 
ousness and  nature  of  tbe 
accusations  against  two 
presidents  - Bill  Clinton  is 
now  confronting  many  of  the 
same  political  and  legal  phe- 
nomena that  characterised 
the  endgame  for  Nixon. 

It  was  Paul  McCloskey,  a 
Republican  congressman 
from  Indiana  and  fringe  rival 
of  Nixon  for  the  1972  party 
presidential  nomination, 
who  first  tried  - and  predict- 
ably failed  - to  get  the 
House  of  Representatives  to 
debate  impeaching  Nixon 
over  Watergate  in  early  June 
1973.  Similarly,  some  right- 
wing  Republicans,  such  as 
Bob  Barr  of  Georgia,  have 
been  using  the  i-word  for 
three  years. 

It  was  a full  14  months 
before  Nixon  finally  resigned 
under  the  weight  of  the  evi- 
dence of  “high  crimes  and 
misdemeanours"  revealed  in 
the  secret  White  House  tape 
recordings  detailing  presi- 
dential Involvement.  That 
“smoking  gun”  was  more 
than  enough  to  persuade 
Republicans  on  tbe  House 
judiciary  committee  to  des- 
ert their  president  and  to 
vote  to  indict  him  on  three  • 
articles  of  impeachment  for  ■ 
seeking  to  suborn  and  per- 
vert the  American  political 
process. 

For  Mr  Clinton,  the  Starr 
report  is  the  equivalent  of 
the  Watergate  tapes.  Ini- 
tially. the  task  of  Kenneth 
Starr,  the  special  counsel, 
was  to  investigate  the  tan- 
gled skein  of  the  Whitewater 
financial  affair  in  Arkansas. 
But  that  has  been  long  for- 
gotten. All  that  ought  to 
matter  now  is  whether  he 
finds  credible  - and  there- 
fore possibly  impeachable  - 
evidence  that  the  president 
committed  perjury  and/or 
obstructed  justice  in  connec- 
; tton  with  his  now'  admitted 
sexual  relationship  with 
Monica  Lewinsky,  the  for- 
mer White  House  intern 
The  Stair  report  will  pre- 
sumably have  another  ele- 
ment: graphic  and  salacious 
descriptions  of  the  Clinton- 


Cfrttan:  hts  best  hope  lies  with  the  tolerant  American  electorate 


Lewinsky  affair.  These  could 
turn  the  tide  of  public  opin- 
ion against  a president  who 
is  still,  at  the  moment,  for 
more  highly  regarded  out- 
side Washington  than  inside 
the  capital  By  contrast.  Nix- 
on’s ratings  in  the  summer 
of  1974  were  in  the  pits,  his 
credibility  shattered  to  the 
point  of  no  return. 

Sensing  or  pre-empting  a 
shift  in  the  national  wind  - 
or  merely  for  their  own  re- 
electoral  reasons  - Demo- 
crats have  begun  running 
away  from  Mr  Clinton  just 


mid-term  elections  (and  who 
are  now  seeking  to  increase 
their  majorities  this  Novem- 
ber). 

More  even  than  that,  Mr 
Clinton  helped  America 
reach  (in  spite  ■ of  recent 
stock  market  -turmoils)  the 
sort  of  broad,  sunlit  eco- 
nomic uplands  that  have 
preserved,  even  if  only  in 
modified  form,  the  progres- 
sive social  and  environmen- 
tal policies  that  Republicans 
were  intent  on  dismantling 
wholesale. 

Now,  some  privately,  and 


Clinton  could  yet  find  an  excitable 
Congress  mishandling  whatever 
evidence  is  presented  to  it 


as  Republicans  did  from 
Nixon.  Previous  loyalists 
such  as  Joseph  Ueberinan  of 
Connecticut,  Daniel  Patrick 
Moynihan  of  New  York  and 
Barbara  Boxer  of  California 
have  taken  to  the  Senate 
floor  to  denounce  their  presi- 
dent's moral  character.  They 
have  all  demanded  more 
"contrition"  than  they  feel 
Mr  Clinton  has  shown  to 
date. 

Their  reaction  may  con- 
tain elements  of  hypocrisy  - 
Congress  is  not  exactly  a 
body  known  for  moral  recti- 
tude. But  it  also  reflects  a 
deep  political  disappoint- 
ment in  a president  whose 
considerable  political  skills 
held  at  bay  the  rampaging 
rightwing  Republican  hordes 
after  their  sweep  In  the  1994 


occasionally  openly,  wonder 
If  a President  A1  Gore  might 
not  be  a better  guardian  of 
Democratic  values  than  a 
discredited  Bill  Clinton  - 
though  the  real  possibility 
that  a special  prosecutor 
might  be  appointed  to  inves- 
tigate the  vice-president’s 
political  fundraising  is  a 
complicating  factor. 

If  Mr  Clinton  is  forced  to 
resign,  it  will  be  because  of 
decisions  taken  by  politi- 
cians with  one  eye  on  votes 
whom  they  face  in  two 
months’  Lime.  In  forming 
their  opinions,  both  voters 
and  politicians  will  be  Influ- 
enced by  tbe  media,  whose 
role  in  Mr  Clinton's  troubles 
has  been  as  important  as  it 
was  with  Nixon.  Until  under- 
mined by  incontrovertible 


evidence,  Nixon’s  defenders 
always  argued  that  there 
was  a liberal  (ie  leftwing) 
conspiracy,  conducted 
through  national  newspa- 
pers and  television  net- 
works. to  “get"  a president 
whose  relations  with  the 
press  had  always  been  diffi- 
cult Earlier  this  year,  Hil- 
lary Clinton  suggested  the 
existence  of  a comparable 
rightwing  media  cabal 
against  her  husband. 

American  journalism  is 
different  now,  more  opinion- 
ated and  with  more  outlets, 
including  the  internet  and 
all-news  television  channels, 
which  are  frenetically  driven 
to  be  first  rather  than  neces- 
sarily right.  The  feeding 
frenzy  that  Watergate  saw 
only  at  its  culmination  has 
been  in  full  flow  ever  since 
tbe  name  of  Monica  Lewin- 
sky first  surfaced.  Many 
powerful  media  personali- 
ties. it  seems,  have  a stake 
in  an  outcome  that  requires 
the  humiliation,  if  not  the 
departure,  of  the  president 
Even  the  New  York  Times, 
traditionally  the  bastion  of 
liberal  values,  has  been 
withering  in  its  contempt  of 
Clinton. 

There  are  dissenting 
voices,  like  Anthony  Lewis, 
the  veteran  New  York  Times 
columnist  who  laments  that 
presidents  can  no  longer 
have,  without  fear  of  sub- 
poena. private  conversations 
with  advisers,  let  alone  pri- 
vate lives.  But  the  tidal  wave 
is  in  the  other  direction. 

All  is  not  lost  for  Mr  Clin- 
ton. that  most  resilient  of 
politicians.  Always  luckv  in 
his  enemies  - the  hubiistic 
Speaker  Newt  Gingrich,  the 
prurient  Mr  Starr,  the 
scheming  and  taping  Linda 
Tripp  - he  could  yet  find  an 
excitable  Congress  mishan- 
dling whatever  evidence  is 
presented  to  ft.  It  is  not  as  If 
Capitol  Hill  is  currently  lit- 
tered with  the  magisterial 
representatives  who,  with 
deliberation  and  solemnity, 
weighed  the  evidence  of  the 
Watergate  story. 

But  his  best  hope  lies  with 
the  jury  that  has  yet  to  be 
heard  from  but  which  has 
elected  him  twice,  knowing 
his  flaws  - the  tolerant 
American  public.  He  will 
need  to  address  them,  free  of 
legalistic  constraints,  before 
they  cast  an  opinion  that 
matters  on  the  first  Tuesday 
ta  November. 


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FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


COMMENT  & ANALYSIS 


FINANCIAL  TIMES 


Number  One  Southwark  Bridge,  London  SE1  9HL 

Tel:  +44  171-S73  3000  Telex:  922186  Fax:  +44  171-407  5700 


Waiting  to  connect  you 


Thursday  September  10  1998 


The  indignity 
of  it  all 


Earlier  this  year,  Frank 
Quattrone  and  his  *aa m 
of  star  “tech  bankers" 
defected  from  Deutsche 
Morgan  Grenfell  to  Credit  Suisse 
First  Boston,  lured  by  multi- 
million  dollar  contracts.  Mr  Quat- 
trone, who  is  thought  to  have 
earned  $30m  last  year  arranging 
mergers  in  the  US  high- 
technology  sector,  resisted 
counter  guarantees  of  a 
multi-million  dollar  pay  package 
to  stay  at  the  German  investment 
bank. 

The  fact  that  CSFB  was  deter- 
mined to  get  its  man  at  any  price 
underlines  how  technology  merg- 
ers and  acquisitions  are  becom- 
ing big  business  for  M&A  teams 
across  the  US. 

The  technology  sector  accounts 
for  8 per  cent  of  US  gross  domes- 
tic product.  For  the  past  two 
decades  it  Iras  been  one  of  the 
country's  fastest-growing  sectors. 
Yet  it  has  never  produced  the  big 
mergers  and  acquisitions  that 
have  characterised  other  indus- 
tries such  as  financial  services, 
pharmaceuticals  and  oil. 

Until  now.  Technology  has 
grown  from  nothing  to  become  - 
if  you  include  telecommunica- 
tions - the  biggest  single  source 
of  M&A  activity.  This  both 
reflects  and  encourages  change 
in  the  business  itself.  Bankers 
expect  a spate  of  big  technology 
deals  - and  big  fees  - as  the 
sector  undergoes  a transforma- 
tion. “The  technology  world 
stands  on  the  verge  of  dramatic 
changes,"  says  Charles  Cory, 
bead  of  Morgan  Stanley  Dean 
Witter's  technology  unit.  “The 
months  ahead  are  going  to  see 
some  deals  that  even  now  are 
unthinkable  to  many  people.” 

At  its  heart  is  a change  In  the 
dynamics  of  the  industry  as  rapid 
technological  change  brings  busi- 
nesses that  were  once  distinct, 
first  into  closer  rivalry  and  then 
into  iTninn 

The  change  has  already  pro- 
duced a spate  of  multi-billion  dol- 
lar mergers  and  a string  of 
smaller  deals  this  year.  They 
include  some  surprising  combina- 
tions of  businesses  that  have  now 
merged  as  technology  blurs  tradi- 
tional distinctions.  Typical  was 
the  acquisition  by  Nortel,  the 
Canadian  telephone  equipment 
company,  of  Bay  Networks,  and 
US  computer  manufacturer  Com- 
paq’s purchase  of  its  rival  Digital 
Equipment,  which  it  bought 
largely  for  DEC’S  services.  Both 
deals  were  worth  more  than  $9bp. 
each,  easily  the  largest  in  thqsec- _ 
tor. 

Banks  have  benefited  from  this 
boom.  Advising  on  takeovers 
ranks  among  the  highest  margin 
work  for  Investment  tanks  and 
with  technology  M&As  rising, 
specialist  bankers,  such  as  Mr 
Quattrone  and  his  team  at  CSFB, 
are,  not  surprisingly,  hot  proper- 
ties on  Wall  Street. 

Goldman  Sachs,  Merrill  Lynch, 
Salomon  Smith  Barney,  Morgan 
Stanley  Dean  Witter  and  CSFB 
top  the  league  of  advisers  on 
technology  deals  announced  so 
far  this  year,  according  to  Securi- 
ties Data,  an  M&A  data  consul- 
tancy. These  banks  expect  the 
healthy  pace  of  M&As  to  con- 
tinue and  say  that  while  most  of 
the  alliance  building  has  been 
between  US  companies,  they  fore- 
cast a boom  in  cross-border  deals. 

“The  months  ahead  look  posi- 
tive,” says  Mr  Cozy  at  Morgan 
Stanley  Dean  Witter.  “The 
strengths  show  few  signs  of 
weakening  and  we  are  expecting 
an  even  busier  time  ahead.” 

But  analysts  stress  that  the 
rise  of  the  billion-dollar 


Technology  mergers  have  gone  from  nowhere  to  become  the  biggest  thing  in  the 
M&A  business.  Roger  Taylor  and  William  Lewis  explain  why 


The  most  powerful  maw  in  the 
world  is  in  sore  political  straits. 
Bill  Clinton  has  allowed  a rather 
sordid  little  private  affair  to  bal- 
loon into  a big  question  of  judg- 
ment and  probity,  which  has 
already  brought  indignity  to  the 
office  of  US  president. 

His  failure  to  express  genuine 
contrition  over  his  sexual  rela- 
tionship with  Monica  Lewinsky 
has  damaged  his  own  standing, 
the  presidency  itself,  and  his 
Democratic  party.  He  is  being 
abandoned  by  bis  own  supporters 
and  ridiculed  by  his  political 
opponents.  His  public' approval 
ratings,  so  long  resistant  to  sug- 
gestions of  scandal  surrounding 
him,  have  started  to  plummet 
Even  when  he  said  “sorry” 
about  the  affair  last  week,  it  was 
ambiguous  whether  he  was  sorry 
for  his  behaviour,  and  for  having 
lied  and  encouraged  others  to  lie, 
or  whether  he  was  merely  sorry 
that  it  had  all  become  such  an 
issue.  Not  only  has  he  been  visi- 
bly reluctant  to  say  the  s-word, 
but  be  has  now  allowed  himself 
to  be  dragged  and  bullied  by  his 
own  supporters  into  saying  it. 
His  words  are  weasel  ones,  his 
actions  based  forever  on  political 
expediency.  He  still  appears  to 
think  that  the  affair  is  a right- 
wing  conspiracy,  and  he  cannot 
see  what  he  did  wrong. 

it  is  the  president’s  behaviour 
which  has  caused  the  Lewinsky 
affair  to  explode.  His  first  mis- 
take was  to  seek  to  deny  it.  His 
second  was  to  fed  to  be  forth- 
right and  direct  in  his  apologies 


to  his  wife  and  the  nation,  when 
an  admission  became  una1 void- 
able. 

A few  weeks  ago  there  was  no 
enthusiasm  in  Congress,  and  the 
wider  political  establishment,  for 
the  dread  process  of  impeach- 
ment. It  is  certainly  not  some- 
thing to  be  considered  lightly. 
But  today,  even  if  not  a likeli- 
hood, it  has  become  a political 
possibility,  thanks  to  the  presi- 
dent’s mishandling  of  his  expla- 
nation. 

There  is  serious  debate 
whether  impeachment  can  be 
used  only  for  criminal  behaviour, 
or  also  for  what  might  be  termed 
outrageous  conduct  And  there  is 
genera]  agreement  that  the  latter 
would  be  grounds  for  such 
action.  Whether  it  comes  to  pass 
will  depend  on  the  tone  and  con- 
tents of  the  report  to  be  filed  by 
Kenneth  Starr,  the  independent 
counsel,  on  Friday. 

Richard  Nixon,  of  course,  was 
never  actually  impeached.  He 
resigned  first.  That  still  does  not 
look  like  a likely  course  for  Mr 
Clinton,  who  has  eveiything  to 
lose  by  quitting,  including  his 
legal  immunity.  But  whatever  he 
does  will  leave  the  office  of  the 
president  further  weakened,  the 
legislature  stronger  - and  his 
reputation  in  tatters.  One  cannot 
expect  much  leadership  from  the 
rest  of  his  tenure. 

That  is  why  his  own  Democrats 
are  turning  on  him,  and  insisting 
that  he  make  it  clear  he  is  genu- 
inely sorry  - for  his  actions,  not 
just  the  tight  corner  he  is  in. 


Euro  slowdown? 


A bleak  picture  of  growth 
prospects  in  the  European  Union 
might  be  suggested  by  the  latest 
data  out  yesterday.  German  out- 
put grew  by  only  0.1  per  cent 
from  the  first  to  the  second  quar- 
ters. Meanwhile,  both  Italy  and 
France  downgraded  their  growth 
forecasts.  Is  this  a sign  that  the 
emerging  markets  .crisis  _is  _sti: 
fling  Europe’s  recovery? 

Not  entirely:  there  is  no  con- 
sistent picture  of  a slowdown 
across  the  three  major  euro-zone 
economies.  Although  all  the  talk 
is  of  the  effects  of  the  Asian  and 
Russian  crises  on  Europe,  the 
more  humdrum  reality  is  that  the 
emerging  markets  are  still  only 
having  a limited  impact  on  out- 
put prospects.  Domestic  factors 
are  far  more  important 

In  Germany,  the  dramatic  slow- 
down in  the  second  quarter  was  . 
almost  entirely  a correction  after 
an  abnormally  strong  first  quar- 
ter, when  a number  of  special 
factors  boosted  growth.  These 
distortions  make  it  difficult  to 
say  what  is  really  happening  to 
output.  Certainly,  domestic 
demand  growth  is  a worry,  but 
trade  is  holding  up  well,  with  the 
current  account  moving  into  sur- 
plus despite  the  emerging  market 
turmoil. 

France's  growth  downgrade 
was  very  small,  shaving  just  0.1 
percentage  points  from  next 
year's  output  growth  forecast, 
which  is  now  2.7  per  cent. 
Despite  weakening  trade,  growth 


this  year  should  still  reach  a 
healthy  3 per  cent. 

Italy  is  quite  a different  story. 
Romano  Prodl,  the  Prime  Minis- 
ter, blamed  the  downgrade  in  the 
government’s  1998  growth  fore- 
cast from  &5  per  cent  to  2 per 
cent  on  the  emerging  markets 
crisis.  But  this  is  far  from  the 
whole  story..  Italian  growth  is 
being  stunted  by  the  effects  of 
the  sharp  tightening  of  fiscal  pol- 
icy to  meet  the  Maastricht  crite- 
rion; and  by  Italy's  serious  struc- 
tural problems,  particularly  in 
the  labour  market,  which  the 
government  has  foiled  to  address. 

What  all  three  countries  do 
have  in  common,  unfortunately, 
is  stubbornly  high  unemploy- 
ment. This  is  unlikely  to  be 
affected  much  by  any  cyclical 
upturn.  In  Italy,  the  unemploy- 
ment rate  is  set  to  hover  at 
around  12  per  cent,  and  while  the 
unemployment  rate  in  Germany 
has  been  falling,  this  appears  to 
be  due  to  a shrinking  of  the 
labour  force  rather  than  a rise  in 
jobs.  This  is  despite  the  fact  that 
Europe’s  labour  markets  are 
much  more  flexible  now  than 
they  were  a decade  ago. 

Europe's  economic  recovery 
has  not  stalled,  but  is  perhaps 
less  robust  than  had  been  previ- , 
ously  hoped.  The  European 
growth  engine,  which  together  i 
with  the  US  is  befog  relied  upon 
to  keep  the  world  out  of  reces- 
sion. cannot  be  taken  for  granted 
quite  yet 


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US  hi-technology:  converging  and  merging 


Hi-tech  sector 
Indices  rsbased 


Hi-tech  sector 


Global  M&A  in  technology,  telecommunications  and  media  activity 

Number  ot  deals  by  sector 


Value  by  sector  (Sen) 

_ „ ■ 13.4 

Software  i 

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n arc.-.;- re 


rictal) 

■ First  iialfl 997  ;si17.7bn) 
3 First  hall  199S(S2S2bn; 


ED 


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tvzr.yi--.  ., 


technology  deal  does  not  simply 
reflect  the  growth  of  the  indus- 
try. Instead  the  shift  marks 
changes  both  in  the  dynamics  of 
the  industry  - and.  in  the  mind- 
set of  its  leading  executives. 

More  than  a decade  ago.  M&As 
were  regarded  by  many  in  the 
technology  business  as  a side- 
show to  the  more  important  issue 
of  product  innovation.  A good 
product,  coupled  with  lots  of 
marketing,  produced  breathtak- 
ing rates  of  organic  growth:  these 
mean  that  owner-managers  did 
not  need  acquisitions  grow  fast 
to  satisfy  outside  shareholders. 
Microsoft,  the  world's  largest 
software  producer  and  one  of  the 
two  largest  companies  in  the  US. 
has  grown  almost  entirely 
through  organic  growth. 

The  view  that  technology  com- 
panies did  not  need  to  make 
acquisitions  was  linked  to  the 
belief  among  industry  executives 
that  M&As  did  not  work  well 
because  of  the  industry’s  suppos- 
edly unique  culture.  Technology 
companies,  so  the  argument  ran, 
were  driven  by  maverick  individ- 
uals, often  the  founders,  whose 
corporate  culture  was  at  odds 
with  Wall  Street  conventions. 

Moreover,  mergers  would  not 
successfully  bring  together  soft- 
ware writers  and  engineers  who 
were  schooled  in  different  tech- 
nologies. Trying  to  force  together 
such  marriages,  it  was  said, 
would  lead  to  the  defection  of 


staff  and  clients  and  damage  the 
business. 

In  recent  years,  however,  this 
school  of  thought  has  been 
turned  on  its  head  with  the  emer- 
gence of  so-called  “serial  acqui- 
rors”, such  as  the  New  York- 
based  Computer  Associates  and 
Silicon  Valley-based  Cisco 
Systems,  which  have  achieved 
extraordinary  growth  through 
takeovers. 

Cisco,  which  is  now  the  leading 
supplier  of  equipment  used  for 
building  computer  networks, 
regards  its  formalised  system  for 
integrating  acquisitions  as  a 
essential  to  its  success.  It  has 
prospered  by  buying  smaller 
businesses  with  a strong  technol- 
ogy base  but  lacking  the  neces- 
sary sales  and  marketing  infra- 
structure. Cisco's  market  value  is 
today  SlOObn,  a position  reached 
Httle  more  than  10  years  after  its 
founding 

The  Cisco  model  has  so  far 
been  the  benchmark  for  M&As  in 
Lhe  technology  industry.  But 
bankers  are  now  licking  their  lips 
at  the  emergence  of  a new  type  of 
deal  in  the  technology  fodukry. 
driven  by  a different  dynamic  - 
convergence. 

Technological  developments 
have  in  the  past  resulted  in  a 
proliferation  of  new  industries. 
Today,  that  process  is  going  into 
reverse  as  new  technologies 
produce  overlapping  functions 
and  blur  traditional 


demarcations  between  sectors. 

One  of  the  best  examples  is  the 
convergence  of  the  internet  and 
so-called  “traditional”  media 
such  as  newspapers  and  maga- 
zines. Today  much  of  the  tradi- 
tional print  media  can  be  read  on 
the  internet  (including  this  one: 
see  wwwjtcom).  New  technolo- 
gies such  as  television  on  the 
web,  internet  access  through  TVs 
and  interactive  televisions  could 
one  day  make  tbe  internet  and 
television  indistinguishable  ser- 
vices. 

Likewise  on  tbe  hardware 
level,  computer  networks,  such 
as  the  internet,  are  converging 
with  telephone  networks  and 
cable  TV  networks.  Traditional 
telephone  companies  now  realise 
the  future  lies  in  selling  internet 
and  data  services  alongside  tradi- 
tional voice  services.  Companies 
that  sell  equipment  either  for 
telephone  or  computer  networks 
already  regard  the  two  areas  as  a 
single  market 

Similarly,  companies  that  sell 
computers  and  software  to  busi- 
nesses are  finding  that  their  mar- 
ket is  not  just  about  selling  prod- 
ucts but  also  about  helping  them 
to  run  it  better  - providing  “total 
solutions”  as  IBM,  the  world's 
largest  computer  company,  puts 
it.  Alec  Ellison,  managing  direc- 
tor at  Broadview,  a technology 
M&A  investment  bank,  says: 
"Companies  are  waking  up  to 
find  that  the  market  they 


Basic  needs 


OBSERVER 


The  United  Nations  Human 
Development  Report  knocks  on 
the  head  the  notion  that  the 
world  needs  to  consume  less.  The 
problem  rather  is  that  more  than 
one-quarter  of  the  world's  popula- 
tion cannot  meet  its  most  baric 
consumption  needs.  Ensuring 
adequate  baric  provision  for  all 
would  cost  a surprisingly  modest 
amount.  It  is  still  a mighty  task. 

The  world  will  consume  twice 
as  much  this  year  as  in  1975,  and 
16  times  as  much  as  in  1900.  But 
over  ibn  people  have  been 
excluded  from  this  consumption 
boom.  Just  20  per  cent  of  the 
world's  population  account  for  86 
per  cent  of  global  consumption. 
The  average  African  household 
consumes  less  now  than  25  years 
ago.  Asia's  financial  crisis  will 
have  a profound  effect  on  living 
standards  in  emerging  markets. 

Not  only  are  there  glaring 
inequalities  in  world  consump- 
tion. Poor  people  disproportion- 
ately hear  the  costs  of  pollution 
and  environmental  degradation. 

The  fear  that  declining  non- 
renewable  resources,  such  as  fos- 
sil fuels,  win  limit  growth  is  dis- 
credited: new  sources  have  been 
found  and  demand  has  slowed. 
The  deterioration  of  renewables 
is  of  fer  greater  concern, . One- 
sixth  of  the  world's  land  area  has. 
been  spoiled  by  overgrazing  and 
poor  farming  practices.  Over-fish- 
tog  is  exhausting  stocks  of  the . 
boric  source  of  protein  for  ibn 
People  in  poor  countries.  The 


overwhelming  majority  of  people 
who  die  due  to  air  and  water 
pollution  are  in  poor  countries. 
The  UN  calls  for  an  end  to  “per- 
verse subsidies’*  worth  S9fl0bn 
per  year,  that'  encourage  overuse 
of  energy,  fertilisers  and  road 
transport 

This  dwarfs  the  sums  needed  to 
achieve  the  UN's  goal  of  ensuring 
minimum  consumption  levels  for 
all  Tbe  world's  richest  countries 
ought  not  to  have  great  difficulty 
in  finding  the  relatively  small 
sums  the  report  shows  would 
provide  baric  social  services  in 
developing  countries.  An  extra 
S6bn  would  provide  universal 
basic  education  in  developing 
countries;  an  extra  $9bn  would 
provide  water  and  sanitation; ! 
Sl3bn  would  provide  baric  health 
and  nutrition  for  all.  This  com- 
pares to  annual  expenditure  of 
|8bn  oh  cosmetics  In  the  US, 
Sllhn  on  ice  cream  in  Europe. 
apd.$85tm  on  business  entertain- 
ment In  Japan. 

The  far  more  formidable  task  is 
to  ensure  functioning  markets, 
sustainable  processes,  and  the 
level  of  organisation  and  commit- 
ment from  the  governments  of 
developing  countries  which  is 
needed  to  make  the  reduction  of 
poverty  a reality.  Corrupt  and 
unstable  governments  can  make 
soluble  problems  seem  hopeless. 
Where  governments  are  prepared 
to  co-operate,  there  is  a moral 
obligation  on  the  part  of  rich 
countries  to  help. 


Slovakia’s 
screen  test 


The  election  bandwagon  of 
Vladimir  Mecfar,  three-time 
Slovak  premier,  is  only  just 
beginning  to  roll,  but  ft  has 
already  flattened  the  general 
director  of  the  main  commercial 
television  station. 

Pavol  Rusko.  the  head  of  TV 

Markiza  and  a prominent 

supporter  of  the  opposition,  is 

claiming  that  the  government 
plans  to  accuse  fun  of  tax  fraud 
and  of  plotting  to  kill  his 
business  associates.  He  says 
he's  planning  to  clear  out  of  the 
county  until  after  the  month's 
elections  are  safely  over. 

The  government,  which  is  not 
known  for  its  tolerance  of 
opposition  - and  which  regards 
Markiza  as  an  opposition 
mouthpiece  - dentes  that  it 
harbours  any  ffl  wffl  towards . 
Rusko.  But  strange  things  have 
been  going  on  at  the  station, 
which  is  part-owned  by  Central 
European  Media  Enterprises  of 
the  US. 

Rusko  was  thrown  oid  of  las 
office  last  month  by  security 
guards  wonting  for  businessman 
Marian  Kodner.  who  rosed  up  to 
announce  that  he  was  the  new 
owner  of  the  51  per  cent  shoe  of 
the  TV  station  that  Rusko 
thought  he  owned  jointly  with  his 
partner. 

A court,  working  in 
uncharacteristic  haste  aid 
secrecy,  had  awarded  control  of 


the  company  to  Ko6ner  for  a 
paltry  $7,000  after  Rusko  failed 
to  pay  a disputed  debt 

So  far,  the  ownership  row  has 
not  tamed  TV  Markiza's 
coverage,  but  a new  election  law 
should  take  care  of  that  even  if 
the  new  owner  doesn’t. 

Under  threat  of  losing  its 
Hc8nce,  TV  Markiza  has  dropped 
a new  series  of  profiles  of 
political  leaders.  This  week  it  was 
hauled  before  the  broadcasting 
commission  to  face  an 
accusation  that  it  had  violated  a 
new  ban  on  “political 
propaganda”  in  the  media  during 
tiie  election  campaign. 

All  very  useful  for  Meciar  so 
far,  but  the  new  law  may  just 
backfire  on  him  - the 
commission  has  also  shot  down 
a programme  on  the 
heavily- biased  state  TV  channeL 


platforms,  nasty  nylon  shirts  and 
kipper  ties.  Economic 
fundamentals  and  fashion  sense 
crumbled  in  tandem,  runs  the 
argument 

But  Observer  seems  to  recall 
that  British  interest  rates  followed 
footwear  - rising  to  a painfully 
high  level  before  the  economy 
and  equity  prices  recovered  - 
while  Japanese  interest  rates 
have  so  far  been  moving  in  the 

opposite  direction. 

Fingers  crossed  for  a paradigm 
shift  towards  sneakers. 


next  year.  Senate  leaders  have 
executed  a sharp  about-turn  to 
foil  in  behind  the  former  dictator. 

National  unity,  however, 
apparently  has  its  limits.  Asked 
for  help  in  discovering  the  fate  of 
tiie  1 ,000  or  more  who  went 
missing  under  his  rule,  he  said:  “I 
have  asked  some  friends  of 
mine,  and  no  one  knows 
anything.”  Sounds  like  his 
Interrogation  technique  might  be 
slipping. 


Rnal  fling 


Burning  ambition 


Bauble  economy 


Those  saber-suits  at  Morgan 
Stanley  have  identified  a new 
leading  indicator  for  the 
| Japanese  economy:  female 
footwear.  The  hideous  platform 
shoes  being  sported  by  Tokyo 
fashion  victims  are  a sure  sign  of 
a prolonged  slump. 

“Bubbles  do  not  generally  lead 
to  a foiling  standard  of  dress, 
whfle  recessions  produce  a rich 
crop  of  what  in  retrospect 
appears  bizarre  and  unwearable,” 
notes  the  investment  bank. 

As  supporting  evidence  it 
points  to  Britain  in  the  1970s  - 
an  era  of  unwearabte  six-inch 


Tomorrow  sees  the  last  official 
celebration  in  Chile  of  the  1973 
military  coup  In  which  leftwing 
President  Salvador  Ailende  died. 

The  September  11  anniversary 
has  been  a national  holiday  since 
1981,  even  under  toe  civilian 
government  that  replaced  coup 
leader  General  Auguste  Pinochet 
eight  years  ago. 

The  festivities  have  tong 
offended  these  who  suffered 
under  the  military  regime  which, 
says  the  current  civilian 
government,  had  over  3,000 
dissidents  killed  and  thousands 
more  tortured.  But  the  Senate  - 
of  which  Pinochet  is  a life 
member  - has  doggedly 
defended  the  holiday  against  all 
government  moves  to  junk  it 

Now  Pinochet,  still  a powerful 
figure,  has  declared  that  the 
holiday  should  be  replaced  by  a 
“day  of  national  unity”  on  toe  first 
Monday  in  September,  starting 


In  this  age  of  stratospheric 
transfer  fees,  thank  goodness 
some  football  players  can  keep 
their  feet  firmly  on  the  pitch. 
While  fans  of  Spain's  Real  Beths 
wonder  whether  it  was  worth 
paying  $35m  for  Dei  Us  on  to 
move  from  S&o  Paolo,  spare  a 
thought  for  his  fellow 
professionals  in  Romania 

The  chances  of  local  club 
Recolta  Laza  hanging  on  to  their 
goalkeeper  have  just  gene  down 
the  shower  plug.  Valentin  Bargan 
has  been  lured  to  Laza’s 
fourth-division  rivals  Stemnic 
Buda  after  they  doubled  their 
transfer  fee  to  $1 1.55:  his  old 
team  could  only  cough  up  $5.78 
to  try  to  keep  him. 

But  the  money,  Observer  is 
happy  to  report,  was  a 
secondary  consideration.  Says 
Bargan:  “The  main  reason  for  my 
departure  was  the  track  of 
firewood  given  me  by  toe  new 
dub.”  The  dub  he  quit  offered  a 
mere  cartful  to  stay  on. 


thought  they  were  In  Is  no  longer 
their  market.” 

It  is  this  convergence  that  is 
driving  many  mergers.  The  big- 
gest area  for  deal-making  has 
been  in  the  telephone  and  data 
networking  equipment  area. 
Leading  telephone  equipment 
companies  such  as  Nortel  and 
France's  Alcatel,  both  traditional 
telecoms  hardware  companies, 
have  been  buying  makers  of  com- 
puter networking  equipment. 
Ericsson,  the  Swedish  telecoms 
company,  yesterday  announced 
the  acquisition  of  Advanced  Com- 
puter Communications,  an  affili- 
ate of  Newbridge  Networks  of 
Canada,  for  $285m  - another 
move  by  a telecoms  company  to 
buy  into  internet  technology. 
European  telephone  equipment 
companies  such  as  Siemens  and 
Alcatel  have  alliances  with  US 
data  companies  - relationships 
which  could  evolve  into  mergers. 

The  convergence  of  the  Inter- 
net with  traditional  media  has 
also  prompted  deals  between 
large,  traditional  media  compa- 
nies and  internet  pioneers.  NBC, 
the  US  broadcast  network,  has 
taken  a stake  in  the  Snap  inter- 
net site  from  C-Net.  Disney 
recent  took  a 40  per  cent  stake  in 
Infoseek.  the  internet  search  site. 
With  Yahoo!,  Excite  and  America 
OnLlne,  tbe  largest  internet 
media  companies,  all  still  inde- 
pendent there  is  speculation 
about  the  next  deal  in  this  area. 

Matt  L'Heureux,  vice-president 
of  investment  banking  at  Gold- 
man Sachs,  identifies  another 
potential  area  for  large  deals: 
computer  hardware  and  software 
companies  that  want  to  expand 
their  services  business. 

At  the  most  basic  level  ser- 
vices can  amount  to  little  more 
than  providing  IT  support  to  cli- 
ents. However,  this  can  be 
extended  to  IT  consultancy, 
systems  integration,  and  outsour- 
cing contracts  to  manage  custom- 
ers' IT  systems.  Compaq's  acqui- 
sition of  DEC,  announced  in 
January,  was  motivated  by  its 
desire  for  a larger  services  opera- 
tion and  Computer  Associates' 
failed  bid  for  Computer  Sciences 
earlier  this  year  was  an  attempt 
to  achieve  the  same. 

George  Boutros,  who  moved 
with  Mr  Quattrone  to  CSFB,  says 
that  the  convergence  of  different 
industries  is  stiff  a relatively  new 
process  and  there  are  likely  to  be 
more  surprising  combinations 
than  those  seen  to  date.  One  pro- 
spective marriage  that  raised  eye- 
brows involved  AOL,  which  was 
forced  to  rebuff  overtures  from 
AT&T,  the  largest  telecoms  group 
in  tbe  US.  This  and  other  other 
examples  of  lateral  moves  by 
industry  leaders  are  being  seen 
as  increasingly  likely. 

Take,  for  example,  Microsoft's 
move  into  internet  content, 
which  .brings  it  more  into  the 
media  business.  Given  Micro- 
soft's CZOObn  capitalisation,  could 
it  one  day  bid  for,  say,  Disney? 

Or  take  the  overlap  between 
telephone  companies  and  tradi- 
tional computer  companies.  As 
data  networking  capabilities  are 
buflt  into  the  telephone  system, 
telephone  companies  find  them- 
selves Involved  in  running  data 
management  services.  AT&T  is 
currently  seeking  to  outsource 
this  type  of  work  to  companies 
such  as  IBM,  which  is  meanwhile 
trying  to  sell  its  computer  net- 
work operation  to  a telephone 
operator  such  as  AT&T.  Could 
these  two  merge? 

Such  combinations  may  sound 
implausible.  But  as  technology 
M&As  gather  pace,  they  may  yet 
become  the  norm. 


100  years  ago 


Asses  Or  Knaves? 

From  Our  Special  Corres- 
pondent, Melbourne.  I have 
referred  in  a previous  letter  to 
toe  fatal  mistake  that  has  been 
made  by  a large  number  of 
companies  rn  sending  out  and 
erecting  batteries  before  they 
know  whether  there  is  any  ore 
to  crush  or  not  There  are  only 
two  ways  in  which  to  account 
for  this  folly  - ore  Is  by  writing 
down  as  asses  toe  Directors 
responsible  for  It,  and  tiie 

other  by  writing  them  down  as 
knaves;  and  I think  In  many 
cases  the  latter  is  toe  true 
explanation.  A company  is 
promoted  with  glowing 
statements  that  It  Is  adjoining 
the  Great  Bunkum  or  some 
other  well-known  mine,  and 
very  often  the  ground  has  no 
other  merit  to  recommend  ft 


50  years  ago 


Wall  Street  Prospect 
Last  Monday's  Labour  Day 
holiday  in  toe  United  States 
; marked  the  traditional  end  of 
the  summer  holiday  period  for 
Americans.  Businessmen  have 
returned  to  their  offices  and 
factories  to  cope  with  the 
normal  winter  expansion  to 
business  activity.  But  toe 
opening  gambits  of  the  New 
York  stock  market  have  not 
been  shaping  very  brflBantfy. 


fSSd 


PRINTERS 
FAX  MACHINES 


FINANCIAL  TIMES 


THURSDAY  SEPTEMBER  10  1998 


THE  LEX  COLUMN 

RusslarT~crusFmTg 


If  ever  the  volatility  of  investment 
banting  earnings  needed  demonstrating, 
the  contrast  between  Credit  Suisse’s  spar- 
kling first-half  results  dnd  recent  Russian 
losses  at  its  investment  banking  subsid- 
iary does  just  that.  It  took  only  a few 
weeks  in  August  for  CSFB  to  wipe  out  a 
third  of  the  S750m  it  contributed  to  its 
parent's  interim  net  income.  Allowing  for 
profits  elsewhere,  Russian  losses  may  well 
amount  to  $350m  so  for.  This  is  hardly  a 
threat  to  a group  that  squirrelled  away 
more  than  SI  bn  in  extra  provisions  in  1997 
and  which  bas  a tier  one  capital  ratio 
above  11  per  cent 

But  the  publication  of  a breakdown  of 
CSFB's  ssbn  exposure  to  emerging  mar- 
kets is  bound  to  raise  the  question  of  how 
much  worse  the  losses  might  get  Only 
Russian  provisions  were  detailed  and 
these  amounted  to  just  over  $ibn  - about 
half  the  exposure.  While  the  list  is  to  be 
welcomed,  what  it  means  in  terms  of  new 
provisions  or  old  ones  used  up  is  unclear. 
That  Credit  Suisse  provides  such  an 
extensive  cushion  is  reassuring  In  one 
way.  the  group  can  take  the  pain.  But  it -is 
a timely  reminder  that  provisions  should 
not  be  disregarded.  The  provisions  taken 
in  one  year  can  bail  the  bank  out  In 
another. 

NTT  DoCoMo 

Tokyo's  market  for  initial  public 
offerings  has  shifted  from  famine  to  feast. 
After  almost  no  new  Issues  in  the  past.  12 
months,  the  flotation  of  NTT’s  mobile 
telecommunications  subsidiary,  DoCoMo, 
could  raise  mesa  than  $l5bn  - more  than 
all  last  year's  deals  put  together.  The  risk 
is  that  domestic  and  international 
investors  could  find  the  issue  indigestible. 

Such  fears  are  overdone.  DoCoMo  is 
likely  to  be  a growth  stock  - unusual  in 
recession-ridden  Japan  - with  57  per  cent 
market  share.  Moreover,  the  group’s  focus 
on  profitability  - unusual  for  a Japanese 
company  - means  the  average  revenue 
from  its  20m  customers  is  high.  And  its 
network  reaches  98  per  cent  of  a popula- 
tion of  124m  people  in  a country  that  still 
has  a staggeringly  large  gross  domestic 
product.  True,  DoCoMo's  debts  are  a con- 
cern, and  the  company's  new  variant  of 
digital  technology  something  of  a gamble. 
But  as  long  as  NTT  does  not  become 
greedy  and  overprice  the  issue,  most 
international  institutions  underweight  in 


CnKStSutese 

.Stare  pries  relative  to  the  Safes  Market  Index 


• m ■ , . ■ 

: Aug  97  1098  Sep 

ftorm  pmnmmr 

Japan  will  readily  pick  up  the  stock.  The 
same  is  doubly  true  for  domestic  institu- 
tions unconcerned  by  currency  consider- 
ations. 

That  will  not  necessarily  be  the  case  for 
retail  investors.  Ten  years  ago  many 
invested  heavily  in  NTT  Itself,  whose 
shares  have  fallen  more  Qian  50  per  cent, 
even  underperforming  the  Nikkei  225 
average.  No  matter  how  attractive 
DoCoMo  looks,  they  might  feel  once 
burnt,  twice  shy. 


UK  stocks 

So  British  Steel,  a company  with  40,000 
employees  and  annual  sales  of  nearly 
£7bn  ($ll.5bn),  is  kicked  out  of  the  UK's 
FTSE  ioo  blue-chip  index.  Among  the  new 
crop  is  Colt  Telecom,  a business  with  900 
employees,  £82m  of  sales  last  year  and  no 
profits.  Throw  in  the  three  other  new 
“Footsie"  telecoms/technology  companies 
and  the  index's  weighting  in  services  tops 
30  per  cent.  That  compares  with  only  14 
per  cent  for  the  German  market 

Meanwhile,  industrials  now  account  for 
a meagre  5 Vi  per  cent  of  the  Footsie.  Wind 
back  a decade.  Then  capital  goods 
together  with  conglomerates  accounted 
for  more  than  banks,  currently  the  largest 
sector,  do  now.  The  marginalisation  of 
manufacturing  and  the  pre-eminence  of 
the  service  industry,  of  course,  reflects 
the  way  the  UK  economy  has  changed. 
But  the  Footsie  exaggerates  that  shift 
because  stocks  are  valued  on  future 
potential  as  well  as  current  earning 
power. 


CONTENTS 


The  promotion  of  high-tech  stocks  also 
gives  at  least  a partial  lie  to  the  theory 
that  UK  investors  do  not  appreciate 
growth  stories.  The  slight  niggle  is  that 
stocks  like  Colt  have  made  it  into  the 
Footsie  thanks,  in  no  small  part  to  the 
enthusiasm  of  US  investors.  As  their  pres- 
ence grows  in  the  UK,  so  too  do  their 
ideas  on  valuation  and  wealth  creation. 
Colt  and  its  ilk  will  add  a dash  of  excite- 
ment to  the  Footsie,  but  could  also  make 
it  a more  expensive  place  to  Invest.  Some 
technology  stocks  trade  on  over  40  times 
prospective  earnings. 

Investors  wbo  buy  the  Footsie  now  are 
buying  into  what  UK  pic  will  look  like, 
not  where  it  is  now.  For  the  latter,  the 
mid-capitalisation  FTSE  2S0  index  - with 
its  much  bigger  weighting  in  industrials  - 
arguably  provides  a more  realistic  snap- 
shot 

BSkyB/Man  Utd 

Manchester  United  fans  complaining 
about  British  Sky  Broadcasting's  takeover 
of  their  soccer  club  have  lost  the  plot  It  is 
the  fans  of  other  clubs  who  Should  be 
complaining.  Rupert  Murdoch's  pay-televi- 
sion group  is  hardly  going  to  pay  £623m 
(Jlbn)  for  United  and  then  run  ft  down.  It 
is  much  more  likely  that  BSkyB  will 
pump  in  cash  to  hire  the  best  players  and 
develop  the  brand  still  further. 

BSkyB  was  extremely  coy  about  the 
deal’s  financial  logic  yesterday.  That  is 
hardly  surprising.  In  part  this  is  because 
BSkyB  has  probably  got  a bargain  - 
despite  being  forced  to  pay  an  extra  ll  per 
cent  in  the  final  negotiating  showdown. 
True,  the  deal  will  initially  be  a touch 
earnings-dilutive.  But  United  is  exception- 
ally well-positioned  to  benefit  from  the 
trend  in  European  soccer  to  winner-takes- 
all  economics.  Pay-per-view  TV,  a poten- 
tial European  super  league  and  a possible 
breakdown  of  the  English  Premier 
League's  single  negotiating  front  all  mean 
the  top  clubs  can  expect  a bigger  slice  of 
the  broadcasting  pie. 

The  other  reason  for  being  coy  is  that 
BSkyB  presumably  hopes  to  use  its  own- 
ership of  United  to  improve  its  bargaining 
position  in  winning  future  broadcasting 
rights  - both  in  the  UK  and  abroad. 
Whether  that  would  be  anti-competitive  is 
a moot  point  But  given  the  current  politi- 
cal hoo-ha,  it  would  certainly  be  foolish  to 
spell  out  its  plans  in  public. 


Bo J cuts  rates  to  prevent 
a ‘deflationary  spiral’ 


& & m? 


Companies  & Finance 

Europe®)  Company  News 15,' 


& 


FTSE  Gold  Mines  Index 


Survey 

Carman  chancaOor  Helmut  Kohl  prepare*  for  Ms  last  cabinet  meeting  I Business  Travel-., -..Separate  section 

before  this  month’s  generai  election.  Rate  of  growth  slows,  Page  3 > World  Energy Separate  section 


FT.com 


FINANCIAL  TIM  IS 


Dyrectny  of  online  services 
via  FT  Etertrofric  PuMshmg 


FTxaoc  the  Financial  Times  web  site; 
online  news,  commit  and  analysis. 

ttifdfw/twFr„can 
Tin  ArcMwe  onlne  anflve  of  beck  town 
of  tee  newspaper  tdnee  July  1996. 

httpJAm*JXT*toJT.carn 
newspaper  sUncrtpttane:  Information, 
offers  and  online  ordering. 
Mp:'/wm¥Jtxan^newspepa^ubs(ri)±^ 
FT  Asnual  Reports  Santo;  onbn  order- 
ing of  anal  or  tatarim  reports  and 
accounts  of  1200  UK  pics 

Mp^A*wwJlaM7^newspapeiy2ZZBJm 
Cttjrfcw:  how  to  gst  share  prices  aid  raar- 
ktf  reports  hy  telephone  and  faxback. 

httpJAfMW.il  cam/newapapBr/21 76 Jam 
Serve]*  details  of  forthcoming  «8torH 
tunny*. 

ttySfoww.  Ham/new5pap6{/236&  Mm 


By  6Ufian  Tati  fa  Tokyo 

The  Bank  of  Japan  is  to  loosen 
monetary  policy  for  the  first  time  in 
three  years  in  order  to  prevent  the 
world's  second  largest  economy  from 
sliding  into  a deflationary  spiral. 

The  overnight  call  rate  - the  inter- 
est rate  at  which  funds  are  lent  in 
the  money  markets  - will  be 
brought  down  from  around  0£  per 
cent  to  0.25  per  cent  and  the  money 
supply  expanded. 

The  decision,  announced  yester- 
day, leaves  Japanese  rates  at  some 
of  the  lowest  levels  in  recent  history. 
Following  the  announcement,  the 
yen  weakened  Y4  against  the  dollar 
and  was  trading,  at  around  Y137  on 
European  markets  compared  with 
around  Y130.45  earlier  in  Tokyo.  The 
move  prompted  speculation  that  the 
US  might  soon  cut  rates  as  part  of  a 
broader  policy  of  global  easing.  Last 
weekend  BSichi  Miyazawa,  Japan's 
finance  minister,  met  Robert  Rubin. 
US  Treasury  secretary,  to  discuss 


Japan's  economy  and  the  recent 
global  financial  turmoil. 

But  Masaru  Hay  ami.  Bank  of 
Japan  governor.  Insisted:  '"There 
have  been  no  discussions  with  over- 
seas authorities  on  this  decision.  We 
took  the  decision  based  purely  on 
the  present  condition  of  Japan." 

Separately,  the  bank's  policy 
board  said  the  measure  had  been 
taken  no  ensure  that  the  economy 
does  not  worsen  further  and  to  pre- 
vent the  economy  from  falling  into  a 
deflationary  spiral". 

The  government  is  due  to  release 
figures  for  gross  domestic  product  in 
the  second  quarter  of  this  calendar 
year  tomorrow.  Officials  have 
warned  that  these  are  likely  to  show 
a further  sharp  decline  in  activity. 

A survey  by  the  finance  ministry 
published  yesterday  showed,  capital 
expenditure  fell  10.6  per  cent  In  the 
second  quarter  of  the  year,  com- 
pared to  the  same  period  last  year. 

The  overnight  call  rate  differs 
from  the  official  discount  rate  in 


thatthe  former  is  set  by  the  market 
hut  the  latter  is  announced  by  the 
Bank  of  Japan. 

The  Bank  of  Japan  can  influence 
the  call  rate  by  the  amount  of  money 
it  provides  to  the  money  markets,  it 
tries  to  "set"  the  overnight  rate  each 
day  by  deciding  how  much  liquidity 
to  pump  into  the  markets.  In  the  last 
three  years,  it  has  set  this  rate 
slightly  below  0 J>  per  cent 

The  decision  to  reduce  the  rate 
could  pave  the  way  for  a cut  in  the 
official  discount  rate  to  025  per  cent 
This  bps  been  at  a record  low  of  0.6 
per  cent  for  almost  three  years. 

Recently  alarm  about  the  health  of 
Japan's  financial  sector  has  pushed 
this  rate  up.  The  bank  has  tried  to 
offset  this  by  providing  the  market 
with  more  funds.  The  overnight  rate 
is  the  level  usually  used  by  the  cor- 
porate sector  in  determining  borrow- 
ing costs. 


Central  Bank  sets  pecs,  Page  6 
Foil  Bank  fans,  Page  13 


Yeltsin  refuses  to  name  his 
choice  to  be  prime  minister 


ByCtnystra  Freeland  and 
Join  Thornhill  fn  Moscow 

Russian  president  Boris  Yeltsin 
yesterday  refused  to  name  his  choice 
as  prime  minister  despite  meeting 
two  of  the  top  contenders  - Victor 
Chernomyrdin,  the  acting  prime 
minister,  and  Yevgeny  Primakov, 
the  foreign  minister. 

The  struggle  over  who  will  be  Rus- 
sia's next  prime  minister  has 
sparked  a showdown  between  the 
Kremlin  and  the  Duma,  the  lower 
bouse  of  the  Russian  parliament, 
which  threatens  to  end  in  the  disso- 
lution of  the  parliament 

Gennady  Zyuganov,  leader  of  the 
Communist  party,  warned  that  forc- 
ing pre-term  parliamentary  elections 
would  create  a power  vacuum  in 
Moscow,  which  he  said  would  be  par- 
ticularly dangerous  given  the  tur- 
moil in  the  Russian  economy.  "A 
half-dead  Kremlin,  an  incapable  gov- 
ernment, and  the  absence  of  parlia- 
ment would  mean  that  there  was  no 
legitimate  authority  at  the  federal 
level,"  he  said.  “I  know  Russia's  his- 
tory well  and  I know  what  happens 
when  there  are  times  of  troubles  in 
the  absence  of  state  power." 


CSFB  hit  by  crisis 

Credit  Suisse  First  Boston,  the 
investment  bank,  plans  to  cut  its 
exposure  to  emerging  markets  after 
heavy  losses  in  Russia.  It  said 
yesterday  it  still  had  a net  exposure 
of  $2.1 6bn,  higher  than  many 
analysts  had  expected.  Lukas 
Mfihlemann,  Credit  Suisse's  chief 
executive,  said:  "We  have  made 
substantial  amounts  of  money  in 
Russia  In  the  past  Whafs 
happening  now  is  we’re  giving  some 
of  it  back."  Shares  in  its  parent. 
Credit  Suisse  Group,  yesterday  fell 
13  per  cem,  by  SFr32  to  SFr212. 
See  Lex;  CS  results.  Page  15 


Mr  Yeltsin's  hesitation  this  week 
in  selecting  a candidate  for  the 
Duma's  third  and  final  ballot  had 
sparked  speculation  that  Mr  Cherno- 
myrdin was  out  of  favour.  But  sev- 
eral leading  Russian  politicians  yes- 
terday predicted  that  the  former 
prime  minister,  whose  candidacy  has 
already  been  rejected  twice,  would 
be  the  president’s  choice  for  the  final 
ballot  as  well. 


Proposing  Mr  Chernomyrdin  a 
third  time  would  infuriate  the 
Duma.  However,  Yuri  Luzhkov,  the 
powerful  mayor  of  Moscow,  said  that 
would  not  deter  the  president 

Alexander  Shokhin,  the  parliamen- 
tary leader  of  the  party  headed  by 
Mr  Chernomyrdin,  said  Mr  Yeltsin’s 
hesitation  did  not  mean  his  support 
for  the  former  premier  had  wavered. 

However,  the  Communists  vowed 
that  Mr  Chernomyrdin  would  be 
rejected  by  the  Duma,  forcing  the 
dissolution  of  parliament  and  Rus- 
sia's most  serious  constitutional  con- 
flict since  1993,  when  the  Kremlin 
brought  In  tanks  to  dissolve  a rebel- 
lious parliament.  In  the  past,  the 
Communists  have  caved  in  to  the 
Kremlin  at  the  last  minute.  But  the 
collapse  of  Russia’s  market  economy 
seems  to  have  emboldened  them. 

Reuters  reported  yesterday  that  a 
meeting  of  foreign  and  finance  offi- 
cials from  the  Group  of  Seven  lead- 
ing industrialised  nations,  to  discuss 
the  Russian  crisis,  would  now  take 
place  on  Monday,  not  Saturday  as 
originally  planned. 

Moscow  crisis,  Page  2 
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THE  1XFCHF1EU) 
GROUP 

OF  COMPANIES 

MANUFACTURING 
WORLDWIDE 

NETHER  HEAGE,  DERBY, 
M56  2J}.  TEL  01773  852311 


■ IlltlMinUttmtMIIUlk 


FINANCIAL  TIMES 


COMPANIES  & MARKETS 


Q11£  MMNCUL  IMS  UNTED  NM 


THURSDAY  SEPTEMBER  10  1998 


1 \ HENRY 
BUTCHER 


: International 
Asset  Consultants 

+44  171  4058411 


Week  37 


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Iridium  postpones  launch  of 
global  mobile  phone  service 

Iridium  is  postponing  the  launch  of  the  world’s 
fiist  global  hand-held  mobile  phone  service  due 
to  technical  difficulties.  The  US-based  satefflta 
operator,  which  was  due  to  have  launched  Its 
service  on  September  23,  said  It  needed  more 
time  to  test  the  $5bn  system.  Page  18 

Europe's  banks  plan  rival  benchmark 

Libor  - the  London 
Interbank  Offered  Rate 
- has  for  years  been 
the  undisputed  bench- 
mark for  international 
transactions  in  most  of 
the  world's  currencies. 
But  leading  European 
balks  hope  to  take 
advantage  of  the  UK’s 
decision  to  opt  out  of 
the  first  wave  of  European  monetary  union  to 
sponsor  a rival  benchmark  rate,  known  as 
Eurfbor.  Business  and  the  Euro,  Page  21 

Grolscb  reveals  flat  interim  profits 

Groisch,  the  Dutch  brewer  of  premium  beers, 
revealed  flat  interim  profits  and  said  no 
improvement  was  likely  for  the  full  year.  Domes- 
tic sales  for  the  summer  season  were  ‘consid- 
erably poorer"  than  last  year.  Page  16 

Thistle  to  return  £185m  to  holders 

Thistle  Hotels,  in  which  Brieriey  investments  of 
New  Zealand  holds  a 46  per  cent  stake,  is  to 
return  £185m  ($305m)  to  shareholders,  a month 
after  plans  to  sen  the  UK's  second  largest 
hotels  company  fell  through.  Page  19 

Israel  to  lift  dual-listing  objections 

Israel’s  Securities  Authority  will  lift  objections  to 
duaWtsting  of  Israeli  companies  trading  on  the 
New  York  Stock  Exchange  and  Nasdaq  but  so 
far  blocked  from  trading  in  Tel  Aviv.  Page  24 

Pakistan  cotton  hit  by  hot  August 

High  night  temperatures  in  August  have  hit 
Pakistan's  cotton  crop.  The  situation  has  high- 
lighted the  country's  environmental  conditions 
and  their  implications  for  its  crops.  Page  26 

Bogotd  stocks  down  51%  this  year 

„ . . Market  turmofl  and 

negative  internal  fac- 
tors have  depressed 
Colombian  equities. 
Since  Russia  devalued 
the  rouble,  Bogota’s 
IBB  index  has  fallen  30 
per  cent  In  doBar  terms 
and  is  51  percent 
down  this  year,  hit  by 
high  Interest  rates  and 
fiscal  deficit  Same 
traders  believe  the 
market  has  touched  bottom.  But  thoughts  of 
recovery  may  be  premature.  Paga  36 


COMPANIES  IN  THIS  ISSUE 


ABP 

AMP 

Acer 

Advanced  Computer 

Awospatfeta 

Airbus 

Albright  A WBacn  . 

BAA.  - - 

BA# 

BSkyB  \ 


20  tritium 
14  huzu  Motors 
14  Mngfoher 
13  LTOB 
7 Logfce 


BellSouth 

Benetton 

Boeing 

CIR 

CSFB 

Canxton 

Ciena.- 

CMbarft 

Coats  VlyaUa 

Corrwntona  Props 

CredtSuJne 

Dassault 

Deutsche  Bank 

Dauacha  Telekom 

Digital  Teleport 

Drasdrar  Bank 

Droit . 

Eqidty  font 

^ - . 

Rtf 

Franc#  Telecom 
FlfBank 
GfiE  : 


OaninJ  Motors 
Orotach  • 
Quod  - 


HuMaoaU 

BM: 

DC. 

tapir-:  .• 
htetraw . 


7 LuoasVartty  19£2 

32  Manchester  UW  6,12^32 
16  Matsushita  14 

7 Maytag  16 

8J20  Mtsub&N  6 

32  NTT  DoCoMo  12,13 

18  Nftckatxo  • 16 

16  New#  Corporation  20 

7 Norwich  Unton  19 

16  PBL  14 

13  Peawdn  t« 

32  Peugeot-CttroBn  16 

18  PhBpa  18 

14  PlraB  7.16 

18  PofyQram  18 

18  Porsche  IS 

12,15  Portfolio  Partners  19 

7 Prads  16 

15  Procter  & Gamble  1,18 

18  Proton  7 

16  RFS  Hotel  Investors  16 

15  Scottish  Metis  32 

16  Soottieh&  Newcastle  32 

1ft  Seagram  1ft 

13  Sate  15 

IB  Sodft*  GMtato  15 

18  SpBce  18 

13  TP!  14 

16  Telebrfe  18 

7 TbWMcs  19 

14  TsBflta  IB 

16  TMstie  19 

16  UBS  15 

16  UPS  7 

is  va  32 

IB  VWr*  Automotive  is 

5 Whitbread  32 

18  WtaunWBson  ■ 1ft 

16  Xerox  18 


CROSSWORD,  P»8*  28 


. MARKET  STATISTICS 


ttaMitfMtedub 
tadxuntBwttai a 

ted  fafamond  optima 

taq  prisii  and  yirida 

CrewjdBw  price* 
%mm  mmd,  UK 
caaecy  ntaJ 


3^31  Eraargtag  Uektf  tioodi  24 

• u fTSNMltf  tan  Mere  32 

24  Rtago  redenge  25 

24  sum  prices  21 


Lanta  On  sendee 
IX  Haagod  funds  MTfts 

Ae#  it.-  — 

mm  "wH  ranra 

2 tar  bti  bond  f 


Btanpdpdrei 

AHMhmtiDdtea 

RS  Odd  Maas  Kite 


ReonttentelK 


27-29 

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24 


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* . Stack. nadats  Ka  glance  SB 

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32  WW stack  nrtaa  ■ 33 


Russian  losses  hit  Credit  Suisse 


By  Bay  Harris  in  London 
and  warn  Hal  hi  Zurich 

Credit  Suisse  First  Boston,  the 
investment  hrmir,  plans  to  cut 
its  exposure  to  emerging  mar- 
kets after  heavy  losses  in  Rus- 
sia where,  it  aTm«tm«»ri  yester- 
day, it  still  has  a net  exposure 
of  32.l6bn  - higher  than  many 
analysts  had  expected. 

Shares  in  its  parent,  Credit 
Suisse  Group,  yesterday  fell  13 
per  cent,  by  SFT32  to  SFrZ12, 
C$139.40)  continuing  their 
sharp  jrfnw»  the  fewrfiw 
crisis  broke. 

CS  gave  more  details  about 
the  composition  Of  its  Tfrncgian 
exposure  than  any  other  big 
bank,  using  an  erw^hangn  rate 
of  Rb&25  to  the  dollar,  one  of 
the  most  conservative  vahra- 


Bank  plans  to  cut  its  exposure  to  emerging  markets 


tlons  yet  But  unlike  some 
other  banks,  it  refused  to  esti- 
mate actual  losses  or  the 
impact  on  pApringg. 

Lukas  MOMenmm.  Credit 
Suisse's  nirinf  executive, 

“We  have  made  substantial 
amnrmtg  of  money  inBussia  in 
the  past  What’s  happening 
now  is  we’re  giving  some  of  it 
back.”  Although  CS  wanted  to 
improve  its . reputation  for 
financial  transparency,  Mr 
MAhiamawri  said  it  was  con- 
cerned that  full  disclosure  of 
the  size  of  its  provisions  would 
weaken  its  bargaining  position 
with  Russian  counterparties. 

Stephen  Hester,  CSFB’s  chief 
fiwanfriai  officer,  said  losses 


had  increased  by  less  than 
$5Qm  since  the  bank  made  its 
first  statement  an  Russia  on 
August  26.  The  previous  state- 
ment was  interpreted  by  ana- 
lysts as  pointing  to  a loss  of  op 
to  $5 00m. 

Robin  Monro-Davies,  chief 
executive  of  the  Pitch  EBCA 
credit  rating  agency,  said  yes- 
terday his  firm  was  reckoning 
on  banks  losing  up  to  80  per 
cent  at  their  Russian  exposure. 

CSFB’s  reduction  of  emerg- 
ing markets  activity  will 
mainly  the  form  of  reduc- 
ing capital  employed  But  job 
losses  are  likely  in  Russia, 
where  CSFB  employs  more 
than  300  people.  Mr  Hester 


said:  *T  would  he  surprised  if 
we  needed  that  number  of 
people  in  Russia,  but  we 
haven't  made  a decision  yet" 

The  revised  Russian  figure 
removed  some  of  the  gloss 
from  the  group’s  first-half 
results,  which  showed  a 36  per 
cent  advance  In  net  profits  to 
SFr2.4bn  ($1.7bn).  CSFB 
increased  net  profits  before 
minority  interests  by  21  per 
cent  to  $754m.  With  revenues 
rising  by  32  per  cent  to  $4.4hn, 
profits  were  squeezed  by  a 38 
per  cent  growth  to  personnel 
expenses. 

Of  its  $2.i6bn  net  Russian 
exposure,  loans  totalling 
$1.323bn  accounted  for  the  big- 


gest chunk.  This  includes 
$993m  in  quasi-sovereign 
loans,  of  which  $609m  was 
extended  to  Russian  multina- 
tionals with  access  to  dollars, 
and  $382m  in  sub-sovereign 
loans. 

CSFB  had  net  trading  posi- 
tions of  KL23m  in  Russian  gov- 
ernment securities  and  $24m 
in  corporate  bands,  ft  is  valu- 
ing its  GKOs  (treasury  hills) 
and  OFZs  (medium-term  fixed- 
rate  government  bonds)  at 
only  5 to  6 per  cent  of  pre- 
restructuring fece  values.  Mr 
Hester  said  much  of  the  hold- 
ings had  been  bought  at  con- 
siderably under  face  value-  - 

Lax,  Page  12 

Credit  Suisse  posts  36%  rise  at 
Interim  stagey  Pag*  15 


Listing  of 
Sanlam 
to  create 
$2.8bn 
company 

By  Victor  Ifcdtot  la  Cape  Town 


Sanlam,  South  Africa’s 
second-biggest  life  assurer  and 
asset  manager,  a»td  yesterday 
its  forthcoming  demutualisa- 
tion would  create  a company 
worth  up  to  RIShn  ($23bn)  in 
the  country’s  biggest  new 
stock  market  listing  to  date. 

Marines  Dating,  Rani»Tn 
executive  chairman,  also 
announced  plans  for  a simulta- 
neous capital  raising  for  up  to 
RSbn  - «tp”n»  South  Africa's 
biggest  - to  finance  further 
restructuring  and  the  R550m 
cost  of  the  demutualisation 
itself. 

Sanlam's  predicted  market 
value  of  between  R14bn  and 
RIShn,  calculated  at  the  end  of 
July,  is  less  than  expected  and. 
could  fell  even  further  after 
the  recent  slot*  market  col- 
lapse: But  the  demutualisation 
Of  Sanlam  thte  year  — anfl  of 
its  larger  rival.  Old  Mutual,  in 
1989  - is  stai  expected  to  boost 
South  Africa’s  sluggish  econ- 
omy by  giving  policyholders 
the  chance  of  windfall  profits 
if  they  sell  their  shares. 

Mr  Dating  Said  tanlam  had 
considered  delaying  the  list- 
ing, but  had  decided  to  press 
ahead. 

*Td  rather  have  this  market 
collapse  behind  me  than  in 
front  of  me."  he  said. 

Provided  75  per  cant  of  San- 
lam's ?..2m  policyholders  who 
vote  are  In  favour  of  demutu- 
alisation, tiie  listing  should  go 
ahead  In  November  or 
December. 

Each  eligible  policyholder 
would  receive  a minimum  300 
free  shares.  About  2bn  free 
shares  wifi  be  issued,  with  an 
indicative  value  of  between  R7 
and  R9  as  at  July  3L 

The  demutualisation  will 
more  than  double  the  number 
of  shareholders  on  the  Johan- 
nesburg Stock  Exchange,  esti- 
mated at  between  500,000  and 
750,000. 

The  new  capital  needed  by 
S»Ttlam  — original ly  estimated 
at  between  R4bn  and  R5bn  - 
will  be  raised  partly  through 
an  offer  to  institutions  on  a 
book-building  basis.  Policy- 
holders wfll  also  be  able  to  buy 
extra  shares  at  a discount,  and 
there  win  be  a retail  offer  for 
the  genual  public,  with  prefer- 
ence given  to  Sanlam’s  cheats 
and  employees. 

Although  Old  Mutual  is  pur- 
suing yfo™8  to  expand  interna- 
tionally, Mr  Dating  acknowl- 
edged yesterday  that  he  had 
modified  his  earlier  objective 
of  making  Sanlam  a global 
player  is  financial 

services. 

Tve  subsequently  come  to 
the  copchatem  that organ- 
isation is  not  fit  enough  as  I 
would  describe  it  to  enter 
international  markets,"  he 
said. 

*T  think  there  is  work  to  be 
done  to  improve  our  position 
in  our  home  base." 

However.  Gensec.  the  San- 
lam asset  management  subsid- 
iary into  which  it  recently 
folded  its  own  asset  manage- 
ment operations,  would  con- 
tinue to  raise  its  International 
profile. 

Sanlam  will  at  least  be  able 
to  avoid  the  wrath  of  the 
South  African  government's 
leftwing  allies  by  toning  down 
its  international  ambitions. 
Unlike  Old  Mutual,  it  is  not 
considering  a primary  listing 
in  London  rather  than  Johan- 
nesburg. although  it  is  likely 
to  have  secondary  listings  in 
London  and  New  York  to 

a*tn»C*  j^amaNnnal  iuvesfrHS. 


Fuji  Bank 
falls  on 
fears  over 
derivatives 

By  GfiBan  Tatt  hi  Tokyo 


Ponche,  the  German  aporta  car  maker,  plans  to  bwtaaae  production  of  the  Banter  model,  abae*  which  accounts  far  efenoet  half  ta  salsa,  at 
Vafanet  Automoflve’sptantln  Rntend.  R «■  aiao  raise  production  of  the  911  modal  at  b Stuttgart  hMdquertora.  Porsche,  urtifefi  sold  almost  16^XX) 
Banters  in  1996-97,  has  been  ismbfe  to  produce  enough  models  in  Stottgart  and  has  used  Vahnet  to  build  Banters  since  1997.  Routes.  Frankfurt 


SWEDISH  TELECOMS  GROUP  PAYS  $285M  FOR  MAJORITY  STAKE  IN  ACCESS  EQUIPMENT  PRODUCER 


Internet  breakthrough  by  Ericsson 


By  frag  Meteor  in  Stockholm  and 
Roger  Taylor  In  San  Francisco 


Ericsson,  the  Swedish  tele- 
communications company, 
yesterday  made  its  first  big 
foray  into  the  rapidly  growing 
internet  products  market  by 
acquiring  a majority  stake  in 
California-based  Advanced 

Computer  OnffwnnTTlratinn  for 
$285m 

Ericsson  said  this  repre- 
sented a breakthrough  in  Its 
efforts  to  develop  a portfolio  of 
internet  products.  It  sees  these 
products  as  necessary  to  estab- 
lish JtxnTf  among  tha  Tffflitirip 
suppliers  of  data-related  tele- 
communications services. 

Anders  I gel,  president  of 


Ericsson's  infocom  division, 
said  the  addition  of  ACC  would 
enable  it  to  offer  a new  range 
of  internet  access  products  for 
fixed  and  mobile  telephone 
networks. 

ACC  makes  remote  access 
equipment.  This  allows  people 
to  connect  computers  through 
the  telephone  system  - for 
example,  when  an  employee 
logs  on  to  their  work  computer 
from  home,  “ft  is  a very  impor- 
tant step  for  us  . . . having 
access  to  this  technology  is 
extremely  important  for  the 
telecoms  systems  of  the 
future,"  Mr  Igd  said.  Ericsson 
would  continue  to  pursue 
smaB-to-mednrm  sized  acquisi- 
tions in  the  sector  to  increase 


its  product  range,  he  said. 

Ericsson,  one  of  the  world’s 
hugest  suppliers  of  fixed  and 
mobile  telephone  systems,  has 
been  criticised  by  some  ana- 
lysts for  not  moving  as  quickly 
as  its  leading  rivals,  such  as 
Finland’s  Nokia,  Alcatel  of 
France  and  Northern  Telecom 
of  Canada,  in  acquiring  US 
internet  companies. 

Traditional  telecoms  infra- 
structure suppliers  such  as 
Ericsson  are  scrambling  to 
keep  pace  with  the  huge 

changes  facing  thair  industry. 

Telephone  systems  have 
increasingly  become  conduits 
for  computer  data  traffic, 
which  has  exploded  because  of 
the  popularity  of  the  internet. 


Industry  forecasts  suggest 
that  the  volume  of  data  traffic 
wiS  be  20  times  that  of  voice 
calls  by  early  in  the  next  cen- 
tury, opening  up  a vast  new 
market  for  internet-related 
systems  equipment. 

The  ACC  deal  poses  a 
dilemma  far  Siemens,  the  Ger- 
man electronics  group,  which 
also  sells  telephone  equipment 
Ericsson  is  buying  its  stake  in 
ACC  from  Newbridge  Net- 
works, of  Canada,  which  has  a 
strategic  alliance  with  Sie- 
mens. Under  the  Ericsson-ACC 
deal,  Siemens  will  find  itself 
selling  the  products  of  a com- 
petitor. 

MfaMtag  to  connect.  Page  11 


Shares  in  Fuji  Bank  tumbled 
15  per  cent  yesterday  to  a 
record  low  of  Y329  amid  mar- 
ket concern  about  the  bank’s 
derivatives  business. 

The  fell,  which  helped  pull 
the  Nikkei  22S  Average  down 
1.06  per  cent  to  close  at 
14,775-54,  left  the  share  price 
sharply  lower  th»-n  tts  peak  of 
Y1.100  and  well  below  the  lev- 
els of  mast  other  large  Japa- 
nese MmTnwdal  banks. 

Fuji  denied  it  faced  a 
Y2,000bn-Y3,000bn  loss  on 
derivatives  operations.  Teru- 
nolbu  Maeda.  managing  direc- 
tor, said:  “Most  of  our  deriva- 
tives transactions  are  interest 
rate  swaps  so  the  risks  are  not 
high.  We  have  lost  about 
Y15-5bn  (JU7m)  at  most” 

Fuji  is  the  latest  hank  to 
became  the  focus  af  concern 
over  a financial  sector  weighed 
down  by  bad  loans.  Long-Term 
Credit  Bank  also  saw  its  share 
price  tumble  on  fears  that  it 
was  insolvent 

The  Financial  Supervisory 
Agency,  Japan’s  hanking 
watchdog,  said  the  volume  of 
derivatives  contracts  hgM  by 
Japan’s  19  largest  banks  at  the 
end  of  fiscal  1997  was 
Y2,305.440bnl  on  a gross 
notional  basis  which  measures 
the  potential  value  of  the  con- 
tracts. The  credit  risk  is 
smaller,  because  the  contracts 
are  netted  off  against  each 
other,  at  around  Y24,000bn. 

The  FSA  figures  show  Fqjt 
Bank's  derivative  contracts 
were  Y418JX)0bn  on  a notional 
basis  after  rising  Y168,000bn  in 
1997.  This  was  the  largest  vol- 
ume held  by  any  Japanese 
bank,  followed  by  Bank  of 
Tokyo-Mitsuhishi,  with 

Y394JM0bn. 

Fuji  Bank  argued  thaitt'was 
“misleading  to  count  the  risk 
simply  from  the  volume  .[of 
derivatives  trade]  the  hank 
has".  It  said  it  had  more  than 
YSOObn  of  unrealised  profits  on 
market-related  trading  at  the 
end  of  August 

But  there  are  also  doubts 
over  the  bank’s  “Fuyo"  heir- 
etsu,  or  business  family,  which 
includes  Yasuda  Trust  Bank, 
and  is  affiliated  to  Hitachi,  the 
electronics  group  which 
warned  that  it  would  poet  its 
first  net  loss  for  50  years.  The 
group  is  unlikely  to  he  able  to 
copy  the  example  of  the  Mitsui 
kelretsu,  which  earlier  this 
month  agreed  to  a large  capital 
injection  to  help  Sakura  hank. 


Letters,  Page  10 


NTT  DoCoMo 
public  offering 
may  raise  $15bn 


By  Pad  Abrahams  In  Tokyo 


The  formal  prospectus  for  the 
sale  of  a2&5  per  cent  stake  in 
NTT  DoCoMo,  the  Japanese 
mobile  telecoms  group,  will  be 
issued  on  Monday,  introducing 
an  initial  public  offering  that 
analysis  say  could  ratise  g!5hn. 

International  institutions 
last  night  questioned  the  wis- 
dom of  attempting  such  a large 
IPO  when  the  markets  are  in 
such  turmoil  and  the  bench- 
mark Nikkei  225  average  has 
just  fait  a 12-year  low. 

Fund  managers  said  they 
knew  little  about  the  company, 
but  potential  investors  will 
this  week  receive  research 
from  hanks  providing  financial 
ripfaite  of  NTT  DoCoMo  since 
1994  as  well  as  indications  of 
the  group’s  prospects. 

Pre-marketing,  coordinated 
fay  faad  managers  Nficko  Secu- 
rities and  Goldman  Sachs,  will 
take  place  until  September  21 
when  the  price  range  should 
be  announced 

NTT  DoCoMo's  management 
will  give  a series  of  presenta- 
tions beginning  on  September 
25  in  Tokyo.  The  following 
week  executives  will  travel  to 
European  and  US  financial 
centres  before  returning  to 
Tokyo  on  October  9.  The  price 
will  be  struck  on  October  12, 
and  trading  wifi  start  an  Octcv 
ber22. 

Only  545,000  shares  are 
being  sold  because  Japanese 
regulations  prevent  them 
being  split  an  mare  than  a one 
for  five  basis. 

To  get  around  the  problem 
of  the  shares’  high  nominal 
value,  the  stock  wifi  be  mar- 
keted as  American  depositary 


shares,  with  1,000  ADSs  per 
share,  ft  was  decided  not  to  list 
the  stock  overseas  because 
there  was  inadequate  time  to 
prepare  accounts  on  the  US 
generally  accepted  accounting 
principle. 

The  flotation  will  use  a book- 
building process.  No  decision 
has  been  taken  about  the  bal- 
ance between  the  domestic  and 
international  tranches. 

There  will  be  no  so-called 
"green  shoe"  additional  allot- 
ment of  shares  in  case  of 
strong  demand,  because  NTT 
does  not  want  to  sell  more 
than  the  30  per  cent  required 
for  NTT  DoCoMo  to  he  listed 
on  the  Tokyo  stock  exchange. 
The  mobile  subsidiary  gener- 
ates 75  per  cent  of  NTT's  oper- 
ating profits. 

NTT  DoCoMo  Is  anxious  its 
customers  should  become 
shareholders.  However,  there 
will  be  no  incentives  such  as 
discounts  or  loyalty  bonus 
shares  that  have  been  used  in 

similar  issues. 

NTT  DoCoMo  subscribers 
have  grown  from  L2m  in  1994 
to  more  than  20m  last  year, 
making  it  the  world’s  largest 
single  rWInlar  provider. 

Yield  per  customer  is  high 
and  in  1997  the  company 
achieved  a return  on  equity  of 
32£  per  cent  Pre-tax  profits 
ware  Yl33hn  (3950m)  and  net 
profits  Y29bn  on  turnover  of 
YlJXSbn. 

Part  of  tie  reason  for  the 
high  profitability  is  the  low 
turnover  of  customers.  The 
so-called  chum  rate,  excluding 
Customers  replacing  hand-sets, 
is  about  1 per  rent  compared 
with  the  2£  per  cent  achieved 
by  Vodafone  of  the  UK 


nig  aomnwiiu  m— Wntoaonfr 


Greenalls 


The  Greenalls  Group  pic 


Private  Placement  of 


US$125,000,000 


Guaranteed  Senior  Notes  due  2008 


Arranged  and  placed  by 

Greeted)  NatWest 


May  1998 


Greenwich  NatWest 


1 

s 


14 


sa  *rer.  es. 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


COMPANIES  & FINANCE:  ASIA-PACIFIC 


SEMICONDUCTORS  JAPANESE  GROUP  SEEKS  TO  CUT  EXPOSURE  TO  VOLATILE  D-RAM  MARKET 


Matsushita  to  close  US  chipmaking  plant 


By  Alexandra  Harney  in  Tokyo 

Matsushita,  one  of  Japan’s 
largest  consumer  electronics 
groups.  yesterday 
announced  it  would  close  its 
only  US  semiconductor  plant 
In  an  attempt  to  reduce  its 
exposure  to  the  volatile 
dynamic  random  access 
memory  (D-ftamj  market 
The  group  is  the  fourth 
Japanese  semiconductor 
maker  this  month  to  consoli- 
date its  chipmaking 
operations  amid  the  collapse 


in  memory  prices  in  the  past 
year.  ; 

Last  week,  Fujitsu  closed  a 
chip  factory  In  the  UK  and 
Hitachf  merged  its  two  US 
semiconductor  units.  Mitsu- 
bishi Electronics  has 
launched  an  overhaul  of  its 
chip  division,  including  the 
closure  of  an  integrated  cir- 
cuit plant  in  the  US. 

The  Matsushita  factory  in 
Puyallup,  Washington,  is 
managed  by  the  group's  US 
subsidiary.  It  makes  4-mega- 
byte memory  chips  but  the 


group  said  operations  would 
shut  in  December.  The  plant 
is  one  of  five  manufacturing 
and  assembly  sites  world- 
wide: the  group  also  has 
facilities  in  Japan,  Singa- 
pore. Indonesia  and  China. 

"Hie  decision  was  made  in 
view  of  the  increased  diffi- 
culty in  continuing  Masca's 
[the  US  chip  subsidiary] 
operations  due  to  the  effects 
of  changing  semiconductor 
market  conditions,  such  as 
the  sharp  decline  in  D-Bam 
prices  since  the  beginning  of 


last  year,”  the  company  said. 

The  group  said  It  was  in 
talks  with  the  factory's  340 
employees  about  further  jobs 
and  was  considering  shifting 
workers  to  Matsushita's 
plant  in  Japan.  It  did  not 
rule  out  further  closures,  but 
indicated  it  intended  to 
maintain  a presence  in  the 
market  to  supply  its  other 
computer  component  divi- 
sions with  memory  chips. 

The  move  did  not  surprise 
industry  observers,  who 
agreed  that  Matsushita's 


semiconductor  business  was 
operating  at  a loss.  In  the 
year  ending  in  March,  the 
group  reported  a 4 per  cent 
improvement  in  component 
sales,  including  memory 
chips,  from  Yl,512bn  to 
Ylisfibn  (Sllilbn).  However, 
it  said  its  D-Ram  business 
had  been  severely  hit  by  the 
80  per  cent  decline  in  global 
memory  prices. 

Analysts  said  Matsushita 
would  see  efficiency  gains  by 
concentrating  its  operations 
in  Japan.  “There  is  so  much 


excess  supply  In  the  market 
that  it  is  much  smarter  to 
focus  manufacturing  in  one 
place  and  try  to  raise  effi- 
ciency,** said  Takatoshi 
Yamamoto,  industry  analyst 
at  Morgan  Stanley  in  Tokyo. 

However,  he  added  that 
the  consolidation  would 
have  little  effect  on  the 
global  semiconductor  mar- 
ket, as  Matsushita's  share  of 
sales  was  extremely  small. 

Shares  in  Matsushita  fell 
Y4Q,  or  L9  per  cent  to  Y2.020 
yesterday. 


PBL  up  161% 
as  it  names  new 
finance  chief 


By  Russell  Baker  in  Sydney 


Publishing  & Broadcasting, 
the  Australian  media  group 
controlled  by  Kerry  Packer, 
announced  a 161.6  per  cent 
surge  in  net  profit  to 
A$476.4m  (USS281Q1)  for  the 
year  to  June  30  and  the 
appointment  of  a new  chief 
financial  officer. 

Geoff  Kleeman.  who  this 
week  resigned  as  chief  finan- 
cial officer  of  Woolworths. 
the  supermarket  chain,  will 
take  up  his  position  with 
PBL  next  month. 

PBL's  bottom-line  profit 
was  inflated  by  net  abnor- 
mal gains  of  A$258.8m. 
which  included  a AS341m 
revaluation  of  the  company’s 
television  licences  in  the 
first  half  of  the  year. 

During  the  second  half 
PBL  booked  an  abnormal 
gain  of  A$91.9m  on  the  sale 
of  Sky  Channel,  the  horse 
race  broadcaster,  to  TAB. 
the  New  South  Wales  betting 
agency.  The  Sky  Channel 
gain  offset  second-half  losses 
relating  to  the  closure  of 
long-term  contracts  provid- 
ing interest-rate  cover  and 
writedowns  in  the  carrying 
value  of  certain  assets. 

Excluding  abnormal  items 
PBL  reported  a 4.7  per  cent 
gain  in  net  profit  to 
A$190.6m.  Sales  increased  5 
per  cent  to  A$l.l6bn. 


On  a divisional  basis,  earn- 
ings before  interest  and  tax 
(ebit)  rose  12.7  per  cent  to 
$207m  In  the  television  divi- 
sion and  2.1  per  cent  to 
A$117.2  in  magazines,  but 
fell  34.2  per  cent  to  AS9.6m 
in  enterprises. 

The  weaker  performance 
from  the  enterprises  division 
reflected  reduced  dividend 
income  from  the  group's 
Investments  In  John  Fairfax, 
the  Australian  newspaper 
group,  and  Sky  Channel, 
which  were  both  sold  during 
the  year. 

Nick  Falloon,  PBL  chief 
executive,  said  the  television 
division  performed  well  "in 
what  was  a difficult  mar- 
ket”. The  magazine  divi- 
sion's slight  gain  reflected 
“problems  in  its  overseas 
divisions  and  continuing 
fragmentation  of  the  market 
in  Australia,'*  he  said. 

Commenting  on  prospects 
for  the  current  year,  Mr  Fal- 
loon said  “conditions  since 
July  in  the  advertising  mar- 
ket have  tightened  with  the 
combined  impact  of  the 
Asian  crisis  and  the  uncer- 
tainty surrounding  the  Fed- 
eral election." 

The  Nine  television  net- 
work continued  to  show 
growth  and  good  ratings  and 
will  be  aided  by  its  coverage 
of  the  Commonwealth 
Games,  he  said. 


Isuzu,  GM  in 
engines  venture 


By  Alexandra  Harney 


James  Packer,  running  Ms  father's  media  empire  since  May  Reuters 


However,  the  magazines 
arm  would  face  a difficult 
time  as  the  weak  Australian 
dollar  would  mean  higher 
paper  prices,  which  had  to 
be  paid  for  in  US  dollars. 

PBL  said  it  was  consider- 
ing its  option  to  equalise  its 
interest  In  Foxtel  the  pay 


TV  group,  with  News  Lim- 
ited. The  option  expires  at 
the  end  of  October  and.  If 
exercised,  would  see  PBL 
with  25  per  cent  of  FoxteL 
In  May.  Mr  Packer  handed 
day-to-day  running  of  his 
media  empire  to  his  son, 
James. 


Isuzu  Motors,  the  Japanese 
car  and  engine  maker,  is  to 
team  up  with  General 
Motors,  the  US  giant  that 
owns  37.4  per  cent  of  Isuzu, 
to  manufacture  and  market 
direct-injection  diesel 
engines  for  small  trucks  and 
vans. 

The  5100m  joint  venture  is 
the  latest  step  in  the  two 
companies'  strategy  to  cap- 
ture a share  of  the  global 
diesel  engine  market.  Last 
summer,  Isuzu  began  build- 
ing a diesel  engine  factory  in 
Poland,  which  is  expected  to 
come  on  line  in  June  1999. 

Isuzu  will  invest  60  per 
cent  and  General  Motors  40 
per  cent,  in  the  venture, 
called  DMAX.  The  company 
will  be  headed  by  Jun 
MotokL  head  of  Isuzu’s  US 
production  preparations  divi- 
sion, and  is  due  to  begin 
operations  in  August  2000. 

The  two  companies  have 
already  started  construction 
of  a 5300m  factory  in  Ohio, 
which  will  employ  700  work- 
ers and  produce  diesel 
engines  for  use  exclusively 
in  GM  trucks.  The  venture 
aims  to  produce  100,000  units 
in  the  first  year  and  to  dou- 
ble this  by  2004. 

Isuzu  said  it  would 
develop  and  manufacture 
the  engines,  and  GM  would 
conduct  sales  and  market- 
ing. The  engines  would  be 
sold  only  in  North  America, 
but  there  were  plans  to 


move  into  Europe  and  Asia. 

“The  joint  venture  is  part 
of  the  GM  group's  global 
strategy  to  strengthen  its 
diesel  engine  business.  Ulti- 
mately, we  would  like  to 
manufacture  engines  in 
Europe.  North  America, 
Japan,  and  the  rest  of  Asia, 
In  order  to  become  the 
world’s  number  one  diesel 
engine  maker,”  Isuzu  said. 

Isuzu  hopes  to  expand  its 
global  sales  of  diesel  engines 
to  1.8m  units  by  2005.  Cur- 
rently, the  group  sells  about 
200,000  units  to  GM,  accord- 
ing to  Warburg  Dillon  Read. 

Analysts  said  the  move 
would  be  expensive  for  debt- 
heavy  Isuzu,  which  is  suffer- 
ing from  the  collapse  in  the 
truck  market  in  Japan  and 
elsewhere  in  Asia.  In  the 
year  to  March,  the  group 
saw  a 2£  per  cent  drop  In 
profits  to  Yio.lbn  (576.3m), 
on  turnover  of  Yl,128bn. 
This  year,  it  expects  earn- 
ings of  only  Ylbn  because  of 
falling  demand  in  the  region. 

Peter  Boardman,  industry 
analyst  at  Warburg  Dillon 
Read  In  Tokyo,  said  the 
group's  debt  burden  would 
make  further  investments 
costly.  He  estimated  Isuzu's 
net  debt  at  4J9  times  equity. 
“Their  goals  for  diesel 
engines  are  realistic.  It  is  a 
good  long-term  strategy,  but 
it  is  just  going  to  be  very 
expensive.  As  an  investor.  I 
wouldn’t  touch  it  until 
everything  comes  on 
stream,"  he  said. 


NEWS  DIGEST 

PETROCHEMICALS 

TPI  restructures  with  sale 
of  non-core  businesses 

Thai  Petrochemical  Industry  said  yesterday  that  many  of 
its  “non-core"  businesses  would  be  spun  off  to  allow  stra- 
tegic partners  to  take  stakes  of  30-40  per  cent  in  Own. 
The  company  would  give  no  further  details  on  what  is 
Thailand's  biggest  debt  restructuring  operation  with  140 
creditors,  except  to  say  that  it  expected  to  see  substantial 
debt  for  equity  swaps.  The  group  suspended  payments  of 
principal  on  its  $4.1  bn  in  total  foreign  currency  debts  last 
October,  although  it  still  pays  interest  on  these  borrow- 
ings. 

There  has  been  speculation  that  the  Leophairatana  foun- 
ding family  will  be  forced  to  accommodate  Wg  foreign 
investors.  Prachai  Leophairatana,  chief  executive,  said  that 
TPI  planned  to  spin  off  power  plants,  deep-sea  ports,  oil 
storage  and  petrochemical  tank  farms,  then  sell  off  stakes 
in  these  ventures  to  raise  fresh  capital 
The  group  declined  to  expand  on  its  negotiations  over 
the  foreign  debts  of  the  parent  company  which  wfll  not  be 
completed  until  at  least  mid-December. 

• The  opening  of  Ratchaburi  power  plant  - designed  to 
be  fuelled  by  the  controversial  Yadana  gas  pipeline  in 
Burma  - has  been  put  back  until  late  December  1999  after 
delays  by  the  leading  contractor  Mitsui,  according  to  the 
state-owned  Electricity  Generating  Authority  of  Thailand. 

The  1,800 MW  combined-cycle  plant  was  supposed  to 
start  operating  last  month.  William  Barnes,  Bangkok 

COMPUTER  MANUFACTURING 

Acer  continues  EU  investment 

Acer,  the  Taiwanese  personal  computer  maker,  said  it 
would  not  stop  its  investments  in  Europe  despite  scrap- 
ping its  plans  to  buy  a PC  production  plant  in  Augsburg, 
Germany,  from  Siemens  Nixdorf.  Stan  Shih,  Acer  chair- 
man, said:  “We  will  invest  more  in  Europe  because  we 
think  the  economy  there  is  still  good  and  we  have  a good 
team  in  Europe."  He  added:  “We’ll  continue  to  increase 
our  investments  in  Europe  step  by  step.’’  The  company 
said  its  top  priority  was  to  revamp  Ns  lossmaking  semicon- 
ductor unit,  formerly  known  as  Tl-Acer.  AP-DJ,  Taipei 

RETAIL  BANKING 

AMP  buys  into  New  Zealand 

AMP,  the  Australian  insurer,  said  its  subsidiary  AMP  Bank 
would  acquire  Citibank's  New  Zealand  retail  banking  busi- 
ness for  an  undisclosed  sum.  The  acquisition  will  add 
more  than  NZ$400m  (US$2 05m)  in  mortgages  and 
NZSIOOm  in  retail  deposits  to  AMP's  operations.  “The 
portfolio,  customer  base  and  distribution  systems  fit  well 
with  AMP's  plans  for  full  service  retail  banking  in  New 
Zealand,”  said  Stephen  BaJme,  AMP  Banking  managing 
director. 

AMP  Bank,  which  trades  as  AMP  Banking  in  Australia,  is 
applying  lor  a New  Zealand  branch  licence  to  allow  it  to 
operate  Citibank's  existing  New  Zealand  retail  portfolio. 
AFX-Asia,  Sydney 

Comments  and  press  releases  about  international 
companies  coverage  can  be  sent  by  e-mail  to 
interna  tional.  companies@ft  com 


the 


ne. 


Investors  and  Investment  Managers,  this  Is  the 
one  opportunity  you  should  not  miss:  a three-day 
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these  CEOs  and  CFOs,  key  decision  makers  in  the 
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This  event  Is  a first  for  Europe.  The  timing  is  right 
too,  with  European  equity  markets  on  the  brink  of 
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Form  opposite  for  your  invitation  to  register. 


European  investment  Congress, 

Congress  Secretariat, 
c/o  Meeting  Makers  Ltd, 
lordanhill  Campus, 

76  Southbrae  Drive, 

Glasgow  G13  xPP,  UK. 

Tel:  4-44  (o)  141 434  1500  Fax:  +44  (o)  141  434  1519 

Email:  eic98Omeetingmakers.co.uk 

Web:  http://wwwjfe.org.uk/elc 


Mr/Mrs/Ms  Forename. 
Surname 


Designation/Job  Title. 

Organisation 

Address 


The  European  Investment  Congress:  It's  the  one. 


Town/City_ 

Country 

Tel 

Email 


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FT2 


EUROPEAN  INVESTMENT  CONGRESS 


EDINBURGH  26-28  OCTOBER  3998 


V'  3r  s 


TV • 

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for  the  euro  f 

Next  January,  thousands  of  securities  will  be 
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ISMA 

I INTERNATIONAL 

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Commerzbank  Aktiengesellschaft 

USD  250,000,000  Subordinated  Floating  Rate 

Notes  Due  2002 

Interest  Period:  September  9, 1998  to  March  9,  1999 1181  days) 
Interest  Rate:  5.41016  % pj. 

Coupon  Amount  USD  136.01  per  USD  5,000  Note 
USD  272.01  per  USD  10.000  Note 
USD  2.720.11  per  USD  100.000  Note 
Payment  Date:  March  9, 1999 

Frankfurt/Main,  September  1998 

COMMERZBANK  $St 


LORRAINE  INVESTMENTS  LUXEMBOURG  SA. 

Socnjli  Anooyme 

Resinercd  office  28.  Boulevard  Jouph  Q - L- 1 840  Luxembourg 
R.C.  Luxembourg  B 47.798 

Notice  is  given  of  the  cmraonfioeiy  general  mcdingofdiarcfioldcn  which  win 
be  held  on  September  18.  1998  m 13:00  bv  bj  Banquc  de  Unembour*. 
14.  Boulevard  Royal.  2449  Luxembourg 

AGENDA 

1.  Reduction  of  the  iwued  capital: 

2.  Acquisition  of  own  dura  by  the  Company. 

3.  Cancellation  of  own  shares'. 

4.  Amendment  of  article  S of  die  urtictei  of  association: 

3.  Miscellaneous. 

The  Board  of  Directors 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1 998 


COMPANIES  & FINANCE:  EUROPE 


BANKING  FRENCH  FINANCIAL  INSTITUTION  PUTS  PRICE  ON  ITS  EXPOSURE  TO  COUNTRIES  HIT  BY  ECONOMIC  DOWNTURN  ^ ‘ : . T . ; V ' ' - ■ ' 

SocGen  books  FFr2.5bn  emerging  markets  provision 


By  David  Owen  in  Paris 

Socletfi  Generate  yesterday 
became  the  first  French 
bank  to  seek  to  Quantify  the 
impact  of  the  Russian  crisis, 
booking-  a general  provision 
of  FFrt.5bn  <$4S0m)  in  its 
first-half  resulta- 
nt said  it  bad  made  provi- 
sion to  “take  into  account 
the  merging  markets  crisis 
triggered  by  the  Russian 
financial  collapse  in 


August".  Its  Russian  com- 
mitments had  been  reduced 
since  the  end  of  1997. 

Current  exposure  at  risk 
in  the  , country  maiuly 
related  to  banking  counter- 
parties and  government 
bonds  and  represented  an 
amount  of  $50Qul 

The  bank  also  reinforced 
its  risk  provisioning  on  expo- 
sure in  sensitive  Aslan  coun- 
tries. through  an  additional 
provision  of  FFr3  ^bn.  This 


NEWS  DIGEST 


FASHION 


Gucci  shares  rise  on 
return  to  sales  growth 

Gucci,  the  Kalian  fashion  group,  saw  its  shares  rise  sharply 
by  $4 tit  to  $39%  early  yesterday  after  reporting  a return  to 
sales  growth  during  the  second  quarter  of  this  year,  fol- 
lowing a decline  in  the  first  quarter.  Domenico  De  Sole, 
president,  said  Gucci  was  "very  encouraged"  by  the 
increase  in  net  revenue  to  $237m  during  the  three  months 
to  July  31,  up  6 per  cent  over  the  same  period  last 
year. 

Like  other  luxury  brands,  Gucci  has  been  hit  by  the 
Asian  crisis  and  volatile  markets.  First-quarter  net  income 
fell  to  $43.1 5m  from  $48.04m  a year  ago,  as  net  revenues 
slipped  -to  $250.66m  from  $254 .32m. 

Gucci  reports  details  of  Its  second-quarter  results  later 
this  month.  However,  the  return  to  revenue  growth  cones 
as  the  group  is  still  reeling  from  the  revelation  in  June  that 
arch -rival  Prada  had  spent  $240m  cm  buying  9.5  per  cent 
of  its  equity.  That  triggered  speculation  that  Prada  was 
preparing  a bid,  possibly  in  partnership  with  a larger  Italian 
group.  Since  then.  Prada  has  not  bought  any  more  shares 
and,  according  to  Gucci,  its  stake  remained  at  9.5  per 
cent  yesterday.  Alice  Rawsthom 


TOBACCO 

Seita  to  buy  back  shares 

Seta,  the  French  tobacco  group,  yesterday  reported  a 20 
per  cent  improvement  in  first-half  profits  and  said  it  would 
soon  launch  a share  buy-back  programme  covering  10  per 
cent  of  its  share  capital. 

The  move  follows  the  recent  official  publication  of  new 
rules  on  buy-backs  by  the  Commission  des  Operations  de 
Bourse,  the  French  stock  market  watchdog.  Sefta  also 
said  it  would  launch  from  next  week  a share  issue,  limited 
to  1 per  cent  of  its  share  capita],  to  tile  benefit  of  its 
employee  stock  ownership  plan. 

Net  attributable  profits  reached  FFr425m  ($73.3m)  on  net 
sales  of  FFr9.36bn,  against  FFr356m  on  sales  of  FR8.89bn 
the  previous  year.  Operating  income  was  up  8 per  cent  at 
FFr641  m. 

The  company  said  the  first  half  had  been  characterised 
by  the  end  of  a price  war  in  France  and  a sharp  upturn  in 
volume  growth  for  the  blond,  or  light,  tobacco  segment 
"The  price  repositioning  of  some  of  the  group’s  brands,  and 
a reorganisation  of  its  sales  force,  had  helped  it  to  regain 
market  share  in  blond  tobacco  cigarettes. 

Seta  said  it  had  renewed  for  three  years  the  licence 
agreement  with  BAT  In  France  under  which  Seta  manufac- 
tures and  distributes  BATs  main  brands,  as  well  as  the 
agreement  in  Germany  where  BAT  is  Seta's  partner  for 
the  distribution  of  Gauloises  Blondes.  The  shares  dosed 
up  2.1  per  cent  at  FFr283.  David  Owen,  Paris 


INVESTMENT  BANKING 


took  overall  provisioning  of 
sack  commitments  to  19.4 
per  cent  of  tbe  total  at  June 
30,  against  10.4  per  cent  six 
months  earlier. 

Overall  commitments  in 
the  five  “most  sensitive” 
Asian  countries  - Thailand, 
Malaysia,  the  Philippines, 
Indonesia  and  South  Korea  — 
stood  at  FFr42Jbn  on  June 
30,  with  FFrtS&lbn  of  the 
total  in  South  Korea. 

The  extra  provision  was  to 


take  account,  of  “the  deterio- 
ration of  tbe  situation  In  this 
region,  notably,  in.  Indon- 
esia'’. ....  . 

The  group  still  managed  to 
report  a 9 per  cant  advance, 
from  FFr3.7bn  to  FFrUbn, 
in  group  net  income.  This 
was  at  tbe  lower  end  of  ana- 
lysts’ expectations.  Gross 
operating  Income  advanced 
to  FFr9-8bo,  an  improvement 
of  more  than  21  per  cant. 

Tbe  figures  were  released 


after  the  stock  market 
closed.  Nevertheless,  bank, 
shares,  including  5ocldt£ 
Gtoferale.  ware  marked  down 
heavily  during  the  day. 

At  close  of  trading,  Soctetfe 
Gdn&rale  was  down  FFr40,  or 
4 per  cent,  at  FFi954._This 
compared  with  falls  of  3.7 
per  cent  far  Paribas,  5.9  per 
cent  for  Banque  Nationals 
de  Paris,  7.5  per  cent  for 
Credit  Commercial  de 
Francs  - and  about  1 per 


the  bsac4nhark  CAC. 


^tee^fianks-  - ^Paribas, ' 
CCF,  =sfe£b  BNP  - W jreporu 
today* -ftfib  Q6cStr?Agrkxfle- 
andnCr^i^cimste  due  to 
release  interim  figures  next 


.ahead  28-7  per  cent.  This 
reflected  the  growth,  from 
-TOraftn  at  2une  3Q  1997  to 


Gross  operating  income 
from  worldwide  corpor- 
ate Mid  investment  bank- 


JB-tfTWOTn  at  June  an  nwv  w — ' , af 

TS^aOta  a year  later,  of  W of 


Gross  -agjsatliig  Income 
from.  r^dJ-bmkbag  stood  at , 
FFr4.  ihn,  jip‘_  5.4  per  cent, 
while  income  from  asset 
management,  and  private 
banking  reached  FFr70Qm, 


.assets  under  management.  ■ 
r.fiaSf  of  file  growth,  was 
attributed  to  acquisitions.  In 
January, -Society  G&a&rale 


UK  * 

JTFr4,4bn  - an  increase  ol 
443  per  cent. 

_ However.  Income  was 
expected  to  be  “noticeably 


January  ,-wxaeie  uwanue  «*imv«**  « . ...... 

-Asset;  Management  bought  - lower"  in  the.  second  .nan. 
85  per  cent  of'Yqmsicbi  .due  to  the  markets  recent 
International  .Capital  Man-  deterioration, 
agement  one  of  Japan’s  larg-  Interim  net  eawungs  per 
est  fund  Ttiam*g*ympnt  com*  —share  were  FFr40.70,  agains* 
nanies  . FFt39 .90. 


Credit  Suisse  posts  36%  rise  at  interim  stage 


Dresdner  confirms  US  aims 

Dresdner  Bank  yesterday  reaffirmed  rts  intention  of 
expanding  in  US  investment  banking,  possibly  through  a 
merger  or  acquisition.  But  Bernhard  Waiter,  the  chairman, 
declined  to  comment  on  reports  - which  first  emerged  a 
month  ago  - that  it  was  Interested  in  PalneWebber,  the 
US  brokerage. 

He  said  Dresdner,  Germany's  third  largest  bank  after  the 
creation  of  Bayerische  Hypo-und  Veneinsbank  through  a 
merger,  did  not  exclude  mergers  or  acquisitions  as  a 
meats  of  growing  in  the  US.  “We  certainly  have  to 
strengthen  our  investment  banking  activities  in  the  US,"  he 
said  at  a banking  conference.  However,  any  decision  on  a 
merger  would  have  to  fit  in  with  Dresdneris  strategy  and 
the  price  would  have  to  be  right  Nor  would  the  bank  allow 
Itself  to  be  put  under  any  time  pressure,  he  added.  Ana- 
lysts have  suggested  that  Allianz,  the  German  insurance 
group  which  is  a big  shareholder  in  Dresdner,  might  Join 
the  bank  in  any  US  deal. 

Mr  Walter’s  comments  come  as  expectations  are  rising 
that  Dresdner  and  Deutsche  Bank,  Germany's  biggest 
bank,  will  make  significant  expansion  moves  in  the  US. 
Both  banks  also  want  to  develop  their  business  in  Franca. 
However,  Dresdner  declined  to  comment  on  reports  it  was 
interested  in  taking  a stake  in  Credit  Lyonnais,  the  state- 
controUed  French  bank  due  to  be  privatised. 

Andrew  Fisher,  Frankfurt 

Comments  and  press  releases  about  international 
companies  coverage  can  be  sent  by  e-mail  to 
(htematibnaf.oompanfasOft.coni 


By  William  HaB  in  Zurich  l 

— ti 

Credit  Suisse,  the  Swiss  t 
banking  group,  yesterday  I 
unveiled  a 36  per  cent  c 
increase  in  first-half  net  . t 
profits,  to  SFr2.4bn  (£L69bn),  i 
primarily  because  of  a one-  i 
third  rise  In  trading  profits  j 
i and  fee  income,  and  a return  l 
to  profit  In  its  troubled 
domestic  hanking  business,  c 
The  group’s  first-half  per-  1 
formance  was  much  stronger  < 
than  that  of  the  enlarged  j 

Huhtamaki 
shares  dive 
on  Russia 
warning 

By6regHdhfor  ■ 

■i  Stockholm 

Shares  in  Huhtamaki 
plunged  more  than  20  per 
cent  yesterday  after  tbe 
Finnish  confectionery  and 
food  packaging  group 
warned  full-year  profits 
would  be  lower  than  expec- 
ted because  of  the  Russian 
crisis. 

The  company  said  reduced 
sales  to  Russia  - which 
accounts  far  about  4 per  cent 
of  annual  turnover  - and 
credit  and  foreign-exchange 
losses  linked  to  its  activities 
there  would  push  1998  prof- 
its below  last  year’s  FM519m 
C$98. 7m).  Huhtamaki  had 
previously  predicted  higher 
profits  this  year. 

Huhtamaki  said  it  had 
expected  Russian  sales  of 
about  FMSOOm  this  year,  but 
the  business  came  almost  to 
a standstill  last  month  and 
could  incur  losses  for  the 
whole  year. 

Huh tam aid's  most-traded 
1-shares  tumbled  FM58  to 
FM2Q0  in  heavy  trading. 

The  fall  underlined  the 
concern  among  investors  in 
Finland.  - the  only  European 
Union  state  which  borders 
Russia  - about  the  country’s 
exposure  to  Russian  finan- 
cial turmoil 

The  company  is  the  latest 
Finnish  group  to  warn  of 
adverse  trading  conditions 
in  Russia.  Raisio,  the  food 
and  chemicals  group,  last 
week  announced  that  its 
Russian  exports  had  ground 
to  a halt  because  of  the 
lack  of  a rouble  exchange 
rate. 

Huhtamaki  executives 
attempted  to  play  down  the 
impact  of  the  crisis,  stress- 
ing the  small  size  of  the  Rus- 
sian market  in  proportion  to 
the  group  annual  sales  of 
FM7.5bn. 

However,  Markku  j 
Pletinen,  a senior 
Huhtamaki  official,  admitted 
the  negative  outlook  was 
unlikely  to  be  reversed 
quickly.  “We  believe  things 
will  not  turn  good 
overnight,"  he  said. 

Tbe  company's  Russian- 
related  activities  centre  on 
confectionery  exports, 
packaging  sales  to  other  food 
exporters,  and  locally 
produced  food  containers. 


UBS  created  from  its  merger 
with  Swiss  Bank  Corpora- 
tion. First-half  net  profits  at 
UBS,  after  adjusting  far  spe- 
cial factors,  rose  5 per  cent 
to  SFzSbn.  Its  14  per  cent 
rise  in  revenues  to  SFrl45bn 
was  much  slower  than  the  22 
per  cent  advance  at  Credit 
Suisse  toSFri&Sbn. 

Credit  Suisse’s  net  interest 
earnings  rose  12  per  cent,  to 
SFr2.8bn,  in  line  with  UBS’s 
experience.  However,  the  34 
per  cent  rise  in  net  trading 


income  at  Credit  Suisse,  to 
SFrtLSbn,  compares  with  an 
11  per  emit  drop  at  UBS,  to 
SFr3Jbn. 

Similarly,  Credit  Suisse's 
net  commission  and  fee 
income  rose  34  pea-  cent,  to 
SFrAISm,  ar.more  than  twice 
as  fast  as  in  DBS's  case. 

The  biggest  contributor  to 
profits  at  Credit  Suisse 
remains  Credit  Suisse  First 
Boston,  the  group's  invest- 
ment bank,  which  had 
already  reported  a 25  per 


cant  increase  in  first-half  net 
profits,  to  SFrUhn. 

CSFB’s  cosfcLncome  ratio 
deteriorated  slightly,  but  its 
21  per  cent  return  on  equity 
was  above' Us  target  of  15  per 
cent  plus.  ' / 

Credit ' Suisse  Private 
Banking,  the  group's  second 
biggest  business,  lifted  net 
profits  24  per  cent,  to 
SFr829m.  Its  assets  under 
management  grew  12.5  per 
cent,  to  SFr428bn,  and  its 
return  an  assets  under  man- 


agement of  41  baste  points 
has  moved  into  the  lower 
end  of.  the  group  target  of 
4050  baste  points. 

The  group’s  domestic 
banking  operation  reported  a 
SFtSlm  net  profit,  against  a 
SFflSQnr  loss  last  year.  Its 
return  on  equity  of  2.4  per 
cent  is  well  below  the  target 
of  10-12  per  cent.  But  its 
eostdneome  ratio  has'  fallen 
from  85  per  cent  to  74  per 
cemL^gainst  a target' of  65 
per  cent. 


'The  second  underperform- 
ing business,  Credit  Suisse 
Asset  Management,  reported 
a 73  per  cent  rise  in  net  prof- 
its, to  SFrl21m.  Its  return  on 
assets  under  management 
fell  to  8.5  basis  points, 
against  a target  of  12-15 
points.  The  newest  part  of 
the  group’s  business,  Winter- 
thur Insurance,  lifted  its  net 
profit  20  per  cent,  to 
SFr*123m. 

Lax,  Page  12 


AH  o/ these  secuMas  hearing  been  s<*I,  this  amouncaatent  appears  aa  a ntaOar  at  mconl  only 


EDP  - Electricidade  de Portugal,  S.  A. 

PTE  443,669,184,000 

Global  Offering  - 
of 

103,178,880  Ordinary  Shares 

in  the  form  of  Shares  or  American  Depositary  Shares 

by 

PARTEST  - Participagdes  do  Estado,  S.G.P.S.,  S.A. 

. Joint  Global  Coordinators  ~ 

Goldman  Sachs  International  ABN  AMRO  Rothschild  BPI — Banco  Portugues  de  Investimento 

International  Ottering 

13,397,802  Ordinary  Shares 

ABN  AMRO  Rothschild  Goldman  Sachs  International  BPI  - Banco  Portugues  de  Investimento 


Credit  Suisse  First  Boston 


Banco  Chemical  Finance 


Banco  Mello  de  Imrestimentos 


Banco  CISF 


Banco  ESSI 


Cazenove  & Co. 


Mediobanca  - Banca  di  Credito  Hnanzfarfo  S.pJL 


Schroders 


Credit  Lyonnais  Securities 


Banco  Finantia 


Central  Banco  de  Investimento 
Warburg  Dillon  Read 


Westdeutsche  Landesbank 


Goldman,  Sachs  & Co. 


United  States  Offering 

7,781,078  Ordinary  Shares 

fn  the  farm  of  American  Depositary  Shares 


Credit  Suisse  First  Boston 


ABN  AMRO  Rothschild 

■ dMafcm  of  ABN  ANRO  Incorporated 


Portuguese  Institutional  Ottering 

12,850,000  Ordinary  Shares 

BPI  - Banco  Portugues  de  Investimento  Banco  CISF 


Banco  ESSI 


Banco  Chemical  Finance  Caixa  Geral  de  Depdsitos  Banco  Mello  de  hwestfmentos  Central  Banco  de  Investimento 


Thb  jnnmBOTmeni  appeals  at  a matter  of  recent  only 


SIGNET 


Signet  Group  pic 


/ L 

?r 


Senior  Unsecured  Loan  Notes  due  2005 
Placed  with  institutional  investors  and  basks 
by 

De  Natiouale  Invest  eringsbaak  N.V.,The  Hague 

Arranged  and  Underwritten  by. 

De  Natiooale  Investeringsbank  MV,  London  Branch 


De  National* 

Investeringsbank  N.V. 


Portuguese  Retail  Offering 

69,150,000  Ordinary  Shares 


BPI  - Banco  Portugues  de  Investimento 

Banco  BPI  Banco  Borges  & Irmao 


Banco  CISF 

Banco  Comercral  Portugues  Banco  Portugues  do  Atlfintico 


Banco  ESSI 

Banco  Esplrito  Santo  Banco  International  de  Crtdito 

Caixa  Gera!  de  Depdsrtos 

Banco  National  Ultramarino 


Banco  Chemical  Finance 

Banco  PhrtoeSotto  Mayor  BancoTotta  & Azores  Cnkfito  Predial  Portugues 


Banco  Mello 


Banco  BUbao  Viscaya  (Portugal) 

Banff-  Banco  International  do  Funchal 


BNC  - Banco  National  de  Crddtto  Imobaidrfo 


Banco  Santander  Portugal 

Caixa  Economics  Montepio  Geral 
Caixa  Central  de  Crddito  Agrfcofe  Mutuo,  CRL 


ABN  AMRO  Bank  NV  Banco  Alves  Ribeiro  Banco  Comercfel  dos  Agones  Banco  Exterior  deEspafia  Banco  Finantia 
Barclays  Bank  PLC  (Portugal)  Cttidtt  Lyonnais  Portugal  Deutsche  Bank  de  Investimento  •'  Finibanco 

September  1936 


Deutsche  Baltic  de  Investimento 


Finibanco 


HOLDERBANK"  1 998  HALF-YEAR  REPOR1 


With  operations  in  over  60  countries  on  6 continents  and  a 
consolidated  annual  capacity  of  approximately  80  million  ton- 
nes, “Holderbank"  is  the  world’s  leading  cement  producer. 


First  half 

1998 

±%- 

Sales  of  cement  and  clmler  in  million  t 

31.7 

+2.3 

Sales  of  aggregates  m million  I 

3S.0 

+8  6 

Sales  of  canctele  in  million  m3 

ICO 

+ 11  I 

Net  sales  in  million  CHF 

5.3<f>0  0 

+ 1 3 

Operating  profit  in  million  CHF 

719.0 

+21.5 

Group  net  income  in  million  CHF 

290.0 

+32  A 

Cash  How  from  operating  activities  in  million  CHF 

■185.0 

+76.4 

•Variation  agamsl  first  half  1 997. 


Encouraging  half-year  results 

"'Holderbank'’  has  substantially  improved  its  earnings  power. 
The  company's  successful  performance  was  driven  by  the 
three  large  Group  regions  Europe,  North  America  and  Latin 
America.  As  anticipated,  sales  of  building  materials  were 
somewhat  down  in  Africa,  the  Near  East,  Asia  and  Oceania. 
Group  net  income  grew  by  around  one  third  to  290  million 
Swiss  francs  on  higher  margins.  Cash  flow  from 
operating  activities  showed  a particularly  impressive  increase. 


Nat  salas  per  region 


Asia.  Oceania  5 


Africa.  Near  Ea5»  7.9% 


Europe  42  2% 


lafm  America  24.0% 


North  America  20  2% 


Outlook 

Even  if  individual  Group  regions  lose  momentum  in  the 
second  half  of  1998,  "Holderbank”  still  expects  to  see  a sig- 
nificant increase  in  consolidated  net  income  for  the  year  as  a 
whole.  The  various  cost  efficiency  programs  the  company  has 
launched,  which  will  have  their  full  impact  for  the  first  time  in 
1998,  will  make  a key  contribution  to  achieving  this  goal. 

Strategy  for  success 

“Holderbank’s"  strength  is  based  on  its  global  presence,  a focus 
on  cement,  cost  and  market  leadership  in  numerous  markets 
and  a personnel  development  policy  shaped  by  a desire  to  be 
a “faster  learning  Group". 


"HOLDERBANK" 


The  lull  hall-year  report 
can  be  obtained  from: 


"Holderbank"  Fmanciere  Glaris  ltd. 
CH-8750  Glaris 


’Holderbanl.'  shares  ere 
lisled  on  Swiss  Exchange 
SWX  and  are  also  traaed 
on  SEAQ  International  in 
london  end  os  ADRs 
in  the  USA 


Switzerland 

Fax  +41  55  222  87  19 

E-mail:  communications@holderbank.com 

Internet;  hHp://www,hoIderbank.com 

...  ‘ . I. 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


COMPANIES  & FINANCE:  EUROPE 

FRANCE  CARMAKING  GROUP ^REPORTS  FOUR-FOLD  PROFITS  RISE  FOLLOWING  HEAVY  LOSSES  LAST  YEAR 

Sales  boost  for  Peugeot-Citroen 


By  Band  Owen  in  Paris 

-Shares  in  Peugeot-CltroSn^ 
climbed  sharply  yesterday* 
after  the  French  carmaker 
■reported  a more  than  four-  - 
fold  increase  in  first-half 
profits,  at  the  top  end  of  ana- 
lysts' expectations. 

The  strong  performance, 
■which  follows  a heavy  1997 
full-year  loss,  is  likely  to  bol-.  . 
ster  confidence  in  Jean-Mar- 
tin Folz,  the  new  chairman 
who  took  over  last  October. 

Coupled  with  the  solid  per- 
formance of  the  big  French 
energy  groups  in  the  face  of 
low  crude  oil  prices,  the  fig- 


ures have  helped  the  French 
industrial,  reporting  season 
get  off  to  a ^positive  start! 
Several  big  French  Indus- 
trial groups  are  due  to  report 
_nert  week.  **  1 tt  " 

Net  attributable  first-half 
income  climbed  to  FFft22bn 
($382.8m).  against  FFr505 m 
in  1997,  on  sales  up  15  per 
cent  to  FFrll6bn. 

Operating  income*  was 
more  than  five  times.  1997 
levels  at  !FFV4.48bn,  or  3.9 
per  cent  of  sales. 

The  hulk  of  this  figure 
came  from  the  automobile 
division,  which  posted  oper- 
ating income  of  FFr2.8bn, 


making  for  a margin  of  2JJ 
per  cenb 

- The"-  company;  said  the 
improvement  reflected  a sig- 
nificant increase"  in  units 
soldby.Teugeot  and  Citroen 
in  all  markets,  as  well  as 
intensified  efforts  to  cut 
costs.  The  automotive  equip- 
ment business  weighed  in 
with  income  of  FFrS5&m, 
while  Jgnance  companies 
contribated-.FFr709ra.  : ! 

The  company  said  !th£ 
“good  results"  reflected 
favourable  conditions  in 
European  car  markets,  as 
well  as  the  implementation 
of  new  priorities. 


Under  Mr  Folz’s  leader- 
ship. the  group  has 
embarked  on  an  industrial 
and  management  reorganisa- 
tion. Earlier  this  year,  the 
■ chairman  summarised  his 
task  as  “correcting  three 
weaknesses”:  a lack  of  vol- 
ume, a lack  of  innovation 
and  a lack  of  profitability. 

For  the  full  year,  the 
group  said  it  expected  the 
European  car  market  to 
expand  by  3 per  cent.  In 
such  conditions,  the  com- 
pany “should  be  able  to 
exceed  significantly  the  tar- 
gets for  1998.  ie.  an  operating 
margin  of  at  least  1.5  per 


cent  in  the  automobile  divi- 
. sion  add  consolidated  operat- 
ing Ifidome  of  more  than 
FFr5bn”.  : 

Today,  the  group's  product 
range  trill  be  enhanced  by 
the  new  Peugeot  206.  the 
replacement  for  the  205. 
which,  with  5.3m  units  sold 
since  1983,  is  among  its  big- 
gest selling  models. 

Net  income  per  share 
climbed  to  FFr44,  against 
FFYlO  a year  ago. 

The  shares  closed  up 

FFr42.  or  4.3  per  cent,  in 

Paris  at  FFr1013.  against  a 1 
per  cent  Tall  for  the  bench- 
mark CAC  40  index. 


BAA  in  airports  bids  link-up 


By  Paul  Betts  In  Milan 


Carlo  De  Benedetti,  the 
former  chairman  of  Olivetti, 
yesterday  teamed  with  BAA, 
the  privatised  British  Air- 
ports Authority,  to  bid  in  the 
planned  privatisation  of  Ital- 
ian airports.  * 

The  partnership  between 
Mr  De  Benedettl's  CIK  indus- 
trial holding  group  and 
BAA.  one  of  the  world's  lead- 
ing airport  operators,  will 
compete  against  another 
powerful  alliance  between 
Benetton,  the  Italian  cloth- 
ing group,  and  Marco  Tran- 
che tti  Proven,  the  chairman 
of  Pirelli,  the  Italian  tyre 
and  cable  company. 

Mr  De  Benedettl's  link-up 
with  BAA  is  his  first  signifi- 
cant business  initiative  since 
he  stepped  down  at  Olivetti 
and  sold  his  stake  in  the  Ital- 
ian information  technology 
and  telecommunications 
group.  He  was  forced  out 
after  Olivetti  teetered  on  the 
brink  of  collapse  18  months 
ago.  Since  then  Olivetti  has 
staged  a spectacular  finan- 
cial recovery. 

CIR  said  yesterday  its 
move  into  the  airports  busi- 
ness was  part  of  a strategy 
to  develop  a presence  in  the 
service  sector.  CIR  currently 
owns  interests  in  publishing, 
car  components  and  indus- 
trial machinery. 

The  sale  by  the  Treasury 


Buoyant  sales:  Italian  airports,  such  as  Linate,  Mian,  are  attracting  buyers'  attention  Trevor  Humphries 


of  its  remaining  55  per  cent 
stake  in  Aeroporti  di  Roma, 
the  Rome  airport  operator,  is 
expected  to  be  the  first  tar- 
get of  the  new  partnership. 
The  entry  by  Mr  De  Bene- 
detti and  BAA  yesterday 
sent  Aeroporti  di  Roma’s 
shares  up  2.4  per  cent 

Milan's  Linate  airport  and 
the  new  Malpensa  hub  are 
also  expected  to  be  sold  off 
by  the  local  and  regional 
authorities. 

BAA,  which  operates 
seven  airports  in  the  UK  and 


another  seven  overseas,  is 
already  present  in  Italy  as 
operator  of  the  Naples  air- 
port. Capodichino.  The  UK 
group,  led  by  Sir  John  Egan, 
has  also  acquired  a leader- 
ship role  in  developing  prof- 
itable retailing  at  its  airports 
operations. 

Benetton  this  year  forged 
a partnership  - Hemes  - 
with  Tronchetti  Provera,  of 
Pirelli,  to  bid  for  airport 
business  in  Italy.  EdMoni 
Holding,  the  Benetton  family 
holding  company,  has  been 


diversifying  into  sendee  sec- 
tors. It  took  control  of  the 
Autogrill  motorway  restau- 
rant and  cafe  chain,  and  has 
expressed  interest  in  form- 
ing with  other  partners  the 
new  hard  core  shareholding 
of  Autostrade  when  the 
motorway  group  is  priva- 
tised. 

Nicola  Trussardi,  the  Ital- 
ian fashion  designer,  yester- 
day said  he  was  also  inter- 
ested in  investing  with  other 
partners  in  Aeroporti  di 
Roma. 


Poor  domestic 
sales  leave 
Grolsch  flat 


By  Gordon  Grand]  in  Amsterdam 


Grolsch,  the  Dutch  brewer  of 
premium  beers,  yesterday 
revealed  flat  interim  profits 
and  said  no  improvement 
could  be  expected  for  the  full 
year. 

The  news  came  as  a fur- 
ther disappointment  to 
shareholders,  following  the 
rejection  at  the  end  of  last 
month  of  a bid  approach  by 
Interbrew  of  Belgium.  The 
shares  fell  FI  3.50,  or  5.9  per 
cent,  to  FI  56. 

"The  summer  season  has 
been  considerably  poorer  in 
1998  than  in  the  previous 
year,  when  August  was  a 
record  month,"  Grolsch  said 
of  its  domestic  sales,  which 
account  for  about  65  per  cent 
of  the  total. 

The  statement  also  unset- 
tled shares  in  Helneken. 
which  fell  FI  3.  or  3.5  per 
cent,  to  FI  83.30. 

Although  the  rival  brewer 
is  much  larger  and  more 
internationally  diverse,  the 
Netherlands  still  accounts 
for  around  17  per  cent  of  its 
turnover.  Analysts  were  yes- 
terday downgrading  their 
earnings  expectations  for 
Heineken  ahead  of  its  first- 
half  results,  due  tomorrow. 

At  Grolsch.  net  profits 
were  unchanged  at  FI  17.8m 
(S9.1m)  on  revenues  l.l  per 
cent  higher  at  FI  270.7m.  For 
the  full  year,  it  expected  to 
maintain  earnings  at  FI  50m. 

The  1997  figures  were 
restated  to  reflect  the  dis- 


posal of  Ruddles  in  the  UK 
and  of  its  stake  in  the  Polish 
Brewpole,  deals  which 
marked  a retreat  from  a 
European  expansion  strat- 
egy. 

While  a hostile  bid  is 
unlikely,  as  Grolsch  shares 
are  largely  held  in  the  form 
of  non- voting  certificates, 
pressure  for  management  to 
be  more  responsive  to  an 
approach  has  been  coming 
from  VEB,  the  Dutch  share- 
holders' association,  and 
from  the  De  Groen  family, 
which  has  the  largest  single 
stake. 

Grolsch  is  seeking  export 
and  licensing  deals  abroad 
while  building  a FI  300m 
brewery  at  its  base  in 
Enschede,  near  the  German 
border,  to  replace  two  exist- 
ing facilities. 

At  a shareholder  meeting 
on  Tuesday,  the  board 
defended  Its  dismissive  reac- 
tion to  Interbrew,  which  had 
wanted  this  project  to  be 
called  off  and  instead  use  its 
own  plants  to  provide 
needed  capacity. 

Directors  said  their  deci- 
sion to  reject  Interbrew  was 
made  “in  even-banded  con- 
sideration of  the  interests  of 
all  stakeholders". 

Jacques  TToch,  chairman, 
added  that  this  did  not  mean 
independence  at  any  price. 
“We  are  ourselves  also  inves- 
tigating what  possible 
co-operation  with  others 
could  deliver  in  added 
value." 


Nackebro 
dismissive  of 
Drott  offer 


Telefonica 
in  talks 
about 
radio  buy 

By  David  White  in  Madrid 


By  Greg  Mdvor  hi  Stockholm 


Nackebro,  the  Swedish  real 
estate  company,  yesterday 
said  that  a SKrSbn  ( 1377m) 
takeover  bid  for  it  by  Drott, 
a larger  rival,  undervalued 
its  assets  and  urged  share- 
holders not  to  sell  pending 
an  external  valuation  of  its 
business. 

However,  Ndckebro  - 
which  last  week  bought  a 
large  stake  in  Drott  in  the 
hope  of  achieving  a tie-up 
between  the  two  - said  it 
remained  convinced  that  a 
merger  was  “industrially 
correct". 

Drott,  which  is  in  the  pro- 
cess of  being  floated  by  con- 
struction company  Skanska, 
was  taken  by  surprise  when 
Nackebro  on  Friday  acquired 
44.6  per  cent  of  its  voting 
rights  and  10.7  per  cent  of 
the  share  capital  for 
SKrl.lbu. 

Mats  Dared,  Drott  manag- 
ing director,  said  yesterday 
bis  company's  bid  was  an 
attempt  to  dictate  merger 
terms  which  would  be 
favourable  for  its  share- 
holders. 

He  said  a tie-up  was 
“within  Drott’s  strategy", 
although  it  is  mainly 
weighted  towards  residential 
property  while  Nackebro  has 
greater  exposure  to  the  com- 
mercial market. 

Analysts  were  generally 
positive  to  a merger, 
although.  Drott’s  move  was 
described  as  defensive. 


“Nackebro  was  too  danger- 
ous to  have  running  around 
with  nearly  a controlling 
stake,"  said  Hans-Olov 
Oberg.  real  estate  specialist 
at  Deutsche  Morgan  Grenfell 
In  Stockholm. 

The  SKrSbn  all-cash  offer 
is  to  be  financed  by  debt 
but  constitutes  no  problem 
for  Drott' s balance  sheet, 
which  is  virtually  debt-free. 

A takeover  would  create 
Sweden's  largest  listed  real 
estate  group,  with  a market 
capitalisation  of  about 
SKrlibn,  and  could  also  her- 
ald more  consolidation  of  the 
sector. 

“For  some  time  we  have 
been  predicting  forthcoming 
mergers  and  acquisitions 
without  seeing  much  sign  of 
them."  Mr  Oberg  said.  “I 
would  be  surprised  not  to 
see  more  transactions  after 
this  one." 

Nackebro,  which  is 
believed  to  be  pressing  for 
four  of  the  five  seats  on 
Drott's  board,  suggested 
Drott’s  SKrl26  a share  offer 
was  too  low. 

It  said  it  had  risible  share- 
holders’ equity  of  about 
SKri53  a share  and 
has  commissioned  an  ex- 
ternal valuation  of  Its 
assets. 

However,  Mr  Dared  said 
the  bid  represented  a 20  per 
cent  premium  to  NSckebro's 
pre^ffer  share  price. 

Nackebro  shares  were 
unchanged  yesterday  at 
SKri27. 


Telefonica,  the  Spanish 
telecommunications  group, 
is  poised  to  take  a further 
significant  step  in  its  contro- 
versial expansion  Into  the 
media  by  purchasing  the 
country's  third  largest  radio 
network. 

The  deal,  which  could  be 
concluded  this  week, 
involves  a chain  of  almost 
100  stations  belonging  to 
Spain’s  National  Blind 
People's  Organisation  (Once) 
and  estimated  to  be  worth 
Ptal8bn-Pta30bn  (5120m- 
S200m). 

It  would  be  carried  out 
through  the  Antena  3 televi- 
sion channel,  in  which  Tele- 
fonica has  management  con- 
trol. 

The  radio  stations  form 
part  of  the  Onda  Cero  net- 
work. which  has  a combined 
audience  of  2m.  The  planned 
deal  would  exclude  more 
than  70  Onda  Cero  stations 
separately  owned  by  Bias 
Herrero,  businessman,  and 
star  radio  presenter  Luis  del 
Olmo,  who  envisage  setting 
up  an  independent  network. 

Telefonica's  plan  reflects  a 
determined  effort  in  the  past 
two  years  by  Juan  Villa* 
longa,  its  chairman,  to  build 
a multimedia  business  in 
Spain  and  Latin  America. 

Beginning  with  the  estab- 
lishment of  a platform  for 
digital  satellite  television. 
Via  Digital.  Telefonica  took 
the  industry  by  surprise  last 
July  by  taking  a 25  per  cent 
stake  in  Antena  3,  for 
Pta26bn.  The  deal  gave  it  the 
maximum  permitted  interest 
by  a single  shareholder. 

Shortly  afterwards  it 
reached  an  agreement  with 
Pearson,  the  UK  group 
which  publishes  the  Finan- 
cial Times,  to  take  20  per 
cent  in  newspaper  and  mag- 
azine publisher  Recoletos  for 
Pta23bn.  Pearson  became  a 
10  per  cent  shareholder  in 
Antena  3 under  the  accord. 

Recoletos,  in  which  Pear- 
son now  holds  75  per  cent, 
has  Marca,  the  top  Spanish 
sports  paper,  and  Expansion, 
the  leading  business  dally, 
among  its  titles.  The  Tele- 
fonica group’s  media  inter- 
ests also  include  cable  TV  in. 
Argentina,  Chile  and  Peru. 

Once's  radio  group 
incurred  a loss  of  Pta72Qm 
last  year.  The  organisation 
has  been  looking  for  a buyer 
in  a change  of  policy  which 
has  already  led  it  to  sell  a 
stake  in  Spain's  Tele  5 tele- 
vision channel.  Apart  from 
Telefonica  ft  has  also  held 
talks  with  Bilbao-based 
regional  press  group  Grupo 
Correo. 

It  set  up  Onda  Cero  in  1990 
when  it  bought  a r-hain  of 
radio  stations  from  the  Rato 
family  (which  includes  Rod- 
rigo Rato.  Spain's  current 
eepnomy  and  finance  minis- 
ter). It  also  controls  a news 
agency,  Servunedia. 

Onda  Cero  has  the  largest 
radio  audience  in  Spain  after 
Cadena  Ser,  which  belongs 
to  the  Prisa  publishing 
empire,  and  the  Church-con- 
trolled Cope  group. 


COMMERCIAL  VEHICLES  HEAVY  EUROPEAN  DEMAND  HAS  LIFTED  SALES  ACROSS  THE  BOARD  AT  THE  FIAT  UNIT 

Iveco  set  to  announce  surge  in  profits 


By  Haig  Slmonian  In  Milan 

:co.  the  commercial 
deles  arm  of  Italy's  Fiat, 
luld  report  sharply  higher 
£ and  profits  when  the 
iup  reports  its  first-half 
lilts  on  September  22. 
iiancarlo  Boschetti,  Iveco 
ef  executive,  said  sales 
old  be  about  12  per  cent 
her  than  In  the  same 
iod  last  year,  while  prof- 
would  be  “by  a wide  mea- 
e superior". 

/ecu  had  sales  of  L5,4S2bn 
1 operating  profits  of 
4bn  ($72.7m)  In  the  first 
f of  1997. 


Speaking  at  the  launch  of 
the  group's  revived  heavy 
truck  range,  using  the  first 
in  a new  family  of  fuel-effi- 
cient engines,  Mr  Boschetti 
said  Iveco  would  continue  to 
push  into  new  markets  such 
as  China,  India  and  South 
America. 

He  denied  Iveco  was  nego- 
tiating further  big  deals  such 
as  the  bus  joint  venture 
agreed  with  France’s  Ren- 
ault VI,  announced  hi  May. 
However,  he  stressed  the 
company  would  continue 
streamlining  its  structure 
and  reinforcing  its  finances 
to  be  flexible  enough  to  take 


advantage  of  “any  favoura- 
ble, situations  the  market 
provided". 

Relations  with  RVI  remain 
close.  The  French  company 
bought  more  than  80,000  die- 
sel engines  a year  from 
Iveco,  and  the  two  groups 
had  cooperated  on  develop- 
ing a new  cab  for  vans. 

But  while  the  bus  alliance, 
which  has  still  to  be  named, 
marked  an  additional  tight- 
ening of  links,  "we  have 
never  talked  about  a further 
step,"  he  said. 

The  commercial  vehicles 
industry  has  been  rife  with 
speculation  about  consolida- 

\ 


tion  after  persistent  reports 
that  Germany’s  Volkswagen, 
Europe's  biggest  carmaker, 
planned  to  expand  into 
heavy  trucks. 

Mr  Boschetti  said  he 
thought  further  consolida- 
tion was  probably  inevitable 
given  the  contraction  that 
had  already  taken  place 
among  manufacturers  and 
the  severe  pressure  on  prices 
in  most  regions,  In  spite  of 
buoyant  sales  volumes. 

Iveco  remained  committed 
to  heavy  trucks,  he  said,  and 
its  new  engines  and  revised 
vehicles  should  help  to 
restore  its  position. 


Many  analysts  say  the 
company’s  reputation  as  a 
heavy  truck  maker  may  be 
difficult  to.  improve,  com- 
pared with  specialists  such 
as  Scania,  and  question 
Iveco’s  long-term  future  in 
such  vehicles. 

Iveco 's  share  of  the  Euro- 
pean heavy  truck  market 
slipped  to  about  10  per  cent 
after  recent  restructuring, 
but  has  since  recovered  to 
11-12  per  cent. 

Iveco’s  sales  have  surged 
across  the  board  this  year  on 
the  back  of  heavy  European 
demand  for  all  types  of  com- 
mercial vehicles. 

’ 1 


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” .7** 

“ * 

'V"  * 

. 

V. 

•**  & 


jj ' 'a1? 


:j feZS#; 


■i’k--*-*- 

oik-i 


issued  in  the  UK  by  KMnwort  Benson  Securtfes  Limited, 
regulated  by  SFA. 

Member  of  the  Dresdner  Bank  Groupi 


O Dresdner  Kleinwort  Benson 


The  cover,  depth  of  dimple  and  core 
technology  of  a golf  ball  all  affect 
performanca  The  art  is  selecting  what  is 
right  for  you  and  for  the  conditions.  To 
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need  the  knowledge  and  understanding 
which  only  comes  with  experience.  This 
is  why  our  expertise  in  equity  trading  can 
make  all  the  difference,  often  when  it 
matters  most  Quality  of  research  is  just 
the  beginning.  Excellence  In  execution  is 
also  crucial  to  performance.  By  combining 


our  traditional  strengths  in  Germany  and 
the  UK  with  capital  commitment  strong 
teamwork  and  state  of  the  art  technology, 
we  have  become  a leading  force  in 
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For  our  clients,  this  equals  better  market 
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18 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


I 


COMPANIES  & FINANCE:  THE  AMERICAS 


INFORMATION  MANAGEMENT  TIE-UP  IS  IN  LINE  WITH  COPIER  COMPANY'S  PARTNERSHIP  STRATEGY 


Xerox  and  IBM  link  to  lift  market  share 


By  Richard  Waters 


Xerox  and  IBM  are  expected 
to  announce  a broad  strate- 
gic partnership  today  that 
both  companies  claim  will 
strengthen  their  position  in 
the  Cast-growing  market  for 
managing  and  sharing  infor- 
mation on  office  computer 
networks. 

The  move  marks  the  most 
significant  tie-up  of  its  bud 
yet  for  Xerox,  which 
recently  turned  to  partner- 


ships-in  its  efforts  to  break 
away-  from  its  traditional 
black>  and  white  photocopier 
business  and  extend  its 
reach  in  the  digital  age. 

The  arrangement  also 
appeared  to  reflect  the  grow- 
ing influence  at  Xerox  of 
Rick.  Thoman,  the  former 
IBM  chief  financial  officer 
who  moved  to  the  company 
a year  ago  as  president 

Mi  Thoman  "has  been 
looking  for  complementary 
opportunities''  between  the 


two  companies,  said  Mark 
Hill,  head  of  Xerox's  office 
business  division.  “'We  recog- 
nise that  we  can't  do  all  the 
pieces  ourselves"  when  it 
comes  to  supplying  equip- 
ment for  and  servicing  office 
networks,  he  added. 

The  first  result  of  the  part- 
nership. due  to  be 
announced  today,  will 
involve  the  joint  develop- 
ment and  marketing  of  com- 
pany-wide systems  for  man- 
aging the  flow  of  documents. 


Xerox  machines  will  act  as 
the  “on-ramps  and  off- 
ramps" to  the  network,  with 
IBM’s  Domino  and  Lotus 
Notes  software  managing 
the  handling  of  electronic 
files. 

Mr  Hill  said  most  office 
networks  are  linked  to  print- 
ers which  create  hard  copies 
from  electronic  files,  but  few 
use  scanning  machines  to 
turn  paper  back  into  elec- 
tronic files.  The  two  compa- 
nies hope  to  overcome  this 


with  what  they  claim  wifi  be 
a amplified  way  of  handling 
information,  from  scanning 
paper  documents  to  sending 
e-mail  faxes. 

"Expanding  network  scan- 
ning and  printing ...  is  cen- 
tral to  our  strategy,"  Mr  Hill 
added,  with  Xerox's  office 
business  division  “on  its  way 
to  being  a $lbn  business". 
The  company's  two-year-old 
push  into  digital  copiers  and 
printers  has  accelerated  in 

recent  months,  with  reve- 


nues from  digital  machines 
growing  at  37  per  cent  in  the 
most  recent  quarter. 

The  companies  said  their 
relationship  would  not  be 
exclusive.  Xerox  is  already 
working  an  a wftmter  initia- 
tive with  Adobe. 

- Besides  combining  their 
technology,  IBM  and  Xerox 
said  they  would  jointly  mar- 
ket their  services  to  large 
companies  - a move  that 
may  lead  to  further  joint  Ini- 
tiatives. 


Procter  & Gamble  succumbs  to  Wall  Street  blues 


The  good  cop  bows  out  of  the  soap  wars 
to  leave  the  ruthless  bad- cop  running  the 
show,  writes  Richard  Tomkins 


When  John  Pepper  and 
Durk  Jager  took  over 
the  top  two  jobs  at 
Procter  & Gamble  in  July 
1995,  they  were  widely  por- 
trayed as  a good  cop,  bad 
cop  act  - Mr  Pepper,  the 
gentlemanly  consensus 
builder,  and  Mr  Jager.  the 
ruthless  hard  man 
Barely  three  years  into  bis 
job,  the  good  cop  seems  to 
have  decided  that  being  nice 
is  not  enough.  Mr  Pepper  is 
to  step  down,  leaving  the 
bad  cop  to  run  the  US  con- 
sumer group  alone. 

To  put  these  events  in  per- 
spective. it  helps  to  return 
briefly  to  the  period  before 
Mr  Pepper  and  Mr  Jager 
took  over  - to  the  five  years 
in  which,  the  company  was 
led  by  Ed  Artzt,  the  so-called 
“Prince  of  Darkness". 

Mr  Artzt  was  a notoriously 
tough  boss.  It  was  under  him 
that  P&G  had  its  last  big 
reorganisation  - a massive 
worldwide  cost-cutting  that 
closed  30  plants  and  resulted 
in  the  loss  of  13,000  jobs,  or 
12  per  cent  of  the  workforce. 

'While  Mr  Artzt  may  not 
have  been  the  most  popular 
chairman  and  chief  execu- 
tive P&G  ever  bad.  he  deliv- 
ered results.  As  savings  from 
the  cost-cutting  flowed 
through,  the  company's 
earnings  rose  sharply  - from 
$a.5bn  to  $2.6bn  in  the  five 
years  to  June  1995. 

When  Mr  Artzt.  retired  at 
65,  Mr  Pepper  and  Mr  Jager 
were  strong  contenders  for 
his  job:  and  the  tough  Mr 
Jager,  regarded  as  Mr  Artzt’s 
protegg.  seemed  the  natural 
inheritor  of  his  mantle. 


But  the  P&G  board,  appar- 
ently considering  it  was  dine 
to  rebuild  morale  after  the 
heavy  cost-cutting,  decided 
instead  to  appoint  the 
friendly  Mr  Pepper  as  chair- 
man and  chief  executive, 
putting  Mr  Jager  beneath 
him  in  the  newly  created  job 
-of  chief  operating  officer. 

It  seemed  an  unlikely  com- 
bination: the  two  were  as  dif- 
ferent as  chalk  and  cheese. 
But  if  they  were  ever  at  odds 
with  one  another,  they  con- 
cealed it  well. 

In  their  rare  public  appear- 
ances. they  cheerfully 
exchanged  banter. 

The  business  itself,  how- 
ever, was  not  going  well. 
Instead  of  trying  to  cut  costs 
even  further,  Mr  Pepper 
decided  to  go  all  out  for  top- 
line growth,  setting  an  ambi- 
tious goal  of  doubling  world- 
wide sales  to  $70bn  in  the  10 
years  to  June  2006. 

;This  was  never  going  to  be 
easy  because  - even  though 
vast  new  markets  have 
opened  up  to  P&G  as  the 
barriers  to  world  trade  have 
come  down  - most  of  the 
company's  sales  are  in  the 
mature  and  highly  competi- 
tive markets  of  North  Amer- 
ica and  western  Europe. 

Even  before  the  latest  tur- 
moil had  hit  world  markets, 
the  company  had  been  fall- 
ing for  short  of  Mr  Pepper's 
target 

Increasing  sales  by  100  per 

cent  over  10  years  meant 
increasing  them  by  7 per 
cent  a year,  but  in  the  year 
to  June  1997,  P&G’s  sales 
rose  by  only  1 per  cent,  and 
in  the  latest  period,  the  year 


PolyGram 
takeover 
approval 
‘in  weeks’ 


By  ABce  flaifstbom 


On  Ns  way  out  John  Pepper  wIB  leave  Durk  Jager  in  charge 


to  June  1998,  they  rose  by 
only  4 per  cent 


Last  month,  after  the 
company  reported  its  lat- 
est figures,  its  shares 
went  into  a nosedive  amid 
increasing  worries  that  it 
was  going  to  miss  its  growth 
target.  Yesterday,  in  spite  of 
the  company’s  insistence 
that  it  was  sticking  by  its 
long-term  goal,  the  shares 
tumbled  again  after  P&G 
revealed  that  volumes  in  its 
current  quarter  were  flat 
Perhaps  the  most  disturb- 
ing aspect  of  the  slow 
growth  is  that  P&G  is  not 
blaming  it  on  the  troubles 
afflicting  emerging  markets. 


which  still  account  for  a rel- 
atively small  part  of  its  reve- 
nues. More  worryingiy.  it  Is 
failing  to  make  significant 
gains  in  its  biggest  and  most 
important  markets  - North 
America  and  western 
Europe. 

The  aim  of  P&G’s  latest 
reorganisation  is  to  put  that 
right  by  making  the  com- 
pany more  innovative,  more 
responsive  to  the  market- 
place, and  quicker  off  the 
.mark  in  bringing  new  .prod-, 
ucts  to  all  its  markets 
around  the  world. 

P&G’s  employees  seem 
likely  to  face  considerable 
disruption  as  the  changes 
are  implemented.  Some  wffl 


lose  their  jobs,  and  nearly  all 
will  find  themselves  working 
in  different  divisional  struc- 
tures, perhaps  with  different 
managers. 

And  above  afi.  the  ruthless 
Mr  Jager  will  be  running  the 
show  - although  both  Mr 
Pepper  and  Mr  Jager  were 
doing  their  best  to  play 
down  the  significance  of  the 
change. 

Bantering  to  the  last,  Mr 
Pepper  said  "good  cop,  bad 
cop”  , had  never  been  .a  very 
apt  description  of  the  way  he 
and  Mr  Jager  worked 
together.  And  Mr  Jager  said 
reassuringly:  "Both  of  us 
turned  180  degrees.  It's  now 
the  other  way  around.” 


Ciena  shares  fall  28%  on  lost  contract 


By  Roger  Taylor 
fa  San  Francisco 


The  ill-fated  attempts  by 
Tellabs.  the  US  telephone 
equipment  company,  to  buy 
data,  the  optical  network- 
ing group,  tan  into  yet  more 
problems  yesterday,  when 
Ciena's  share  price  fell  28 
per  cent  following  news  of  a 
lost  contract. 

The  deal,  which  bas 
already  had  to  be  renegoti- 
ated under  similar  circum- 


aces,  now  appears  to  be 
the  balance  once  again. 

Tellabs’  revised  all-share 
offer  values  Ciena  at  about 
$3.7tra  following  a 7 per  cent 
rise  in  Tellabs  shares  to 
S46ft.  However,  after  Ciena's 
shares  dropped  $7g  to  $20% 
yesterday,  the  market  was 
valuing  the  business  at  little 
more  than  $2bn.  This  com- 
pares with  the  high,  earlier 
this  year,  of  more  than  $9bn. 

The  plunge  in  Ciena’s 
share  price  followed  the 


news  that  Digital  Teleport,  a 
competitive  local  exchange 
telephone  company  based  in 
St  Louis,  had  awarded  most 
of  its  contract  for  optical  net- 
working equipment  to  Pirelli 
of  Italy.  Ciena  was  also 
thought  to  be  in  line  for  the 
business. 

This  is  the  second  time 
that  failure  to  win  an  order 
has  sent  Ciena's  share  price 
sharply  down. 

The  original  deal  between 
Tellabs  and  Ciena  was  scup- 


pered after  AT&T,  the 
long-distance  operator, 
announced  it  was  not  going 
to  buy  machines  from  Ciena 
just  as  shareholders  were 
due  to  vote  on  the  Tellabs/ 
Ciena  link-up. 

The  two  companies  have 
since  renegotiated  the  deal, 
with  Tellabs  reducing  its  all- 
share offer  from  one  Tellabs 
share  to  0.8  Tellabs  shares 
for  each  Ciena  share. 

Last  week,  Michael  Birk, 
chief  executive  of  Tellabs. 


said  he  was  confident  the 
deal  would  now  go  ahead 
under  the  revised  terms,  and 
shook  off  concerns  that  the 
volatility  tn  the  stock  mar- 
ket could  put  his  plans  at 
risk. 

However,  analysts  yester- 
day warned  that  the  current 
wide  divergence  between  the 
two  companies’  share  prices 
and  growing  concerns  at 
Ciena’s  failure  to  win  busi- 
ness could  force  him  to 
reconsider. 


Seagram,  the  Canadian 
entertainment  group,  hopes 
to  complete  the  $10.4bn  take- 
over Md  of  PolyGram,  the 
Dutch  pi||Sfo  and  film  com- 
pany, by  the  beginning  of 
November. 

The  bid,  which  is  the  most 
expensive  corporate  transac- 
tion in  music  industry  his- 
tory, was  unveiled  in  May, 
but  put  on.  ice  pending  clear- 
ance from  US  and  European 
regulators. 

Seagram  is  understood  to 
have  made  a preliminary  fil- 
ing with  the  European  Com- 
mission in  secret  It  expects 
to  receive  approval  from  the 
commission  by  the  end  of 
tMc  month. 

The  Canadian  group  will 

then  Tnflke  its  final  filings 
with  the  Securities  & 
Exchange  Commission  in 
New  York. 

The  acquisition  involves 
buying  the  75  per  cent  stake 
in  PolyGram  currently 
owned  by  Philips,  the  Dutch 
consumer  electronics  com- 


pany. 

Seagram,  which  plans  to 
merge  PolyGram's  music 
interests  with  its  Universal 
Music  subsidiary,  is  anxious 
to  complete  the  takeover 
swiftly  to  prevent  further 
deterioration  in  PolyGram’s 
trading  performanop. 

The  shock  of  the  surprise 
bid,  and  the  uncertainty 
among  employees  and 
recording  artists  during  the 
regulatory  delay,  has  destab- 
ilised PolyGram's  business. 

Last  Friday,  PolyGram 
signed  a new  record  deal 
with  U2,  one  of  its  most  suc- 
cessful rock  groups,  to 
release  three  Best  Of  U2 
albums.  The  agreement, 
which  was  endorsed  by  both 
Philips  and  Seagram,  is 
understood  to  involve  paying 
U2  more  than  $50m  in  cash- 
advances.  an  unprecedented 
amount  for  previously 
recorded  material. 

The  first  Best  Of  U2  album 
will  go  on  sale  in  November, 
after  Seagram  bas  acquired 
PolyGram-  It  is  intended  to 
bolster  PolyGram's  sales 
during  the  traditionally  busy 
pre-Christmas  trading 
period. 


kintiimuitHW 


NEWS  DIGEST 

telecommunications 


Brazilian  government  set 
to  licence  competition 


PROPERTY  INVESTMENT 


Concern  at  merger  collapse 


MANUFACTURING 


Shares  In  Maytag  rose  $1%,  or  4.2  per  cent,  to  $46%  yes- 
terday after  the  white  goods  maker  said  its  third-quarter 
earnings  would  surpass  expectations.  It  forecast  that  sales 
for  the  quarter  would  be  up  as  much  as  20  per  cent  on 
the  $855.8m  it  achieved  in  the  corresponding  period. 

Like  many  makers  of  household  appliances,  Maytag  has 
benefited,  in  part,  from  a robust  housing  market  While 
new  home  sates  fell  1.6  per  cent  in  July  . according  to  the 
Commerce  Department,  the  rate  of  new  home  sates  for  the 
first  seven  months  of  the  year  is  nearly  10  per  cent  ahead 
of  last  year’s  pace. 

“Exceptionally  strong  sates  of  major  appliances,  floor- 
care  products  and  vending  equipment  drove  our  record 
first-half  performance,  and  that  momentum  has  continued 
in  the  third  quarter."  said  Leonard  Hadley,  chairman  and 
chief  executive  of  the  Newton,  Iowa,  company. 

“Maytag’s  sales  in  the  third  quarter  should  be  above  the 
$1bn  mark  for  the  flihd  quarter  in  a row,  and  we  expect 
earnings  per  share  in  the  quarter  to  be  better  than  the  cur- 
rent $0.70  consensus  estimate  of  financial  analysts  pub- 
lished by  First  Call,"  he  said.  Agencies 


Comments  and  press  releases  about  International 
companies  coverage  can  be  sent  by  e-mail  to 
International.  companiesQft  com 


CPR 


CPR  REPORTS  NET  INCOME  OF  FRF  204  MILLION  FOR  THE  FIRST  HALF 
OF  1998,  BEFORE  PROVISIONS  FOR  GENERAL  MARKET  RISKS. 

IN  UQfT  OF  THE  CURRENT  STATE  OF  FINANCIAL  MARKETS,  THE  BOARD 
VOTED  A PROVISION  FOR  GENERAL  MARKET  RISKS  IN  THE  AMOUNT  OF  FRF 
1 50  MILLION,  WHICH  REDUCES  NET  INCOME  TO  FRF  54  MILLION. 


BANQUE 
D'INVESTISSEMENT 
ET  DE  CESTtON 


FRFmttUons 

1997 

Jane  30,1997 

June  50, 1998 

1- half  981 

1' half  97 

Net  banking  Income 

2.192.1 

U57. 1 

1.1893 

+ 28% 

Operating  expenses 

1.593.7 

778.9 

797.* 

+ 2A% 

Cross  operating  Income 

598.« 

5763 

392.4 

* 3.7% 

Net  income  before  provision  lor 
genera)  market  risks 

325J 

1863 

2040 

♦ 93% 

Prwiston  for  general 
marker  risks 

(150.0) 

Net  incoroe 

3252 

186.3 

54.0 

Asset  under 


management 

(FRF  billions! 


CPR  report*  net  banking  income  of  FRF  1. 189.8  million  as  of  June  30. 1998.  repre- 
scntifig  an  increase  of  2.8?*  over  the  first  half  of  1997  and  of  8.6%  over  1997  on  a 
yearly  basis.  Operating  expenses  were  up  2.4%  from  the  first  half  of  1997,  (hough 
stable  in  comparison  with  the  previous  yeacTbe  operating  ratio  stood  at  67.094. 
Gross  operating  income  increased  by  3.7%  from  die  first  half  ofl 997  and  by  3 1 .2% 
on  a yearly  basis. 


Proprietary  trading 

Arbitrage  operations  in  equity,  derivative  and  private-sector  bond  markets  produ- 
ced satisfactory  results.  In  the  first  half,  the  financial  crisis  in  Asia  (fid  not  have  an 
adverse  effect  on  income.  Nonetheless,  the  aggravation  of  the  crisis  since  the  begin- 
ning of  the  second  halt  especially  in  Russia,  led  the  Board  to  vote  a non-deductible 
provision  for  general  market  risks  in  (be  amount  of  FRF  150  nrijfipg.  Before  the 
devaluation  of  the  ruble,  the  group's  Russian  commit  meats  totaled 
FRF  280  million. 


1995  1996  1991  June  50, 
1998 


Asset  management 

There  was  strong  growth  in  assets  under  management  which  rose  to  FRF  79.1  bil- 
lion. Net  banking  income  increased  significantly,  in  part  due  to  growth  in  order, 
taking  activities  for  private  investors.  CPR  continued  to  invest  In  computer 
technology  and  to  bolster  the  work  force. 


Brokerage 

Brokerage  activities  reported  contrasting  results.  Low  trading  volume  in  interest 
rate  markets  adversely  affected  business  in  government  securities  and  money  mar* 
ket  brokerage.  On  the  other  hand,  activities  in  equity  and  derivative  markers  were 
satisfactory,  as  were  operations  in  primary  interest  rate  and  equity  markets. 


INVESTOR  RELATIONS 

THt-nliorn1:  55  I 45  95  24  33 
Fax-  55  l 45  96  75  05 

c moil  odcspinnciuct  • cpr.fr 
VVofo  Mtij.  wiuv.cpr.fr 


Outlook 

Since  the  beginning  of  the  second  half,  the  outlook  Is  positive  for  net  hanking 
income,  asset  management  and  brokerage  activities. 

Beyond  1998,  CPR's  financial  base  and  growth  potential  in  its  three  businesses 
remain  well  anchored. 


Iridium  halts  mobile  phone  launch 


By  Christopher  Price 


The  high-risk  nature  of 
satellite  communications 
was  underlined  yesterday 
when  iridium  announced  it 
was  postponing  the  launch 
of  the  world’s  first  global 
band-held  mobile  phone  ser- 
vice due  to  technical  difficul- 
ties. 

The  US-based  group, 
which  was  due  to  have 
launched  its  service  on  Sep- 
tember 23,  said  it  needed 
more  time  to  test  the  $5bn 
system. 

In  addition,  software  prob- 
lems in  some  of  the  handsets 
were  being  addressed,  while 
one  of  the  66  satellites  in 
orbit  had  malfunctioned  and 
would  probably  need  replac- 
ing. 


Ed  Staiano,  chief  execu- 
tive, said  a full  commercial 
service  would  now  he 
launched  on  November  l. 
“We  have  been  conducting 
some  trials  but  we  want  to 
test  the  system  with  hun- 
dreds of  thousands  of  calls 
in  every  conceivable  circum- 
stance." 

The  Indium  service  will  be 
the  first  to  allow  calls  to  be 
made  and  received  by  mobile 
phone  from  anywhere  in  the 
world. 

However,  the  group 
received  its  first  setback  last 
month  when  two  of  its  other 
satellites  failed. 

Mr  Staiano  said  Iridium 
was  prepared  for  a satellite 
failure  every  two  months.  It 
launched  five  at  the  week- 
end In  order  to  replace  the 


failures  and  have  some  In 
reserve. 

Other  aspects  of  the 
launch  had  also  fallen 
behind  schedule,  but  were 
being  addressed.  Motorola, 
tire  company’s  biggest  share- 
holder, was  due  to  begin 
shipping  handsets  next  week 
for  the  extensive  subscriber 
trials.  These  are  expected  to 
retail  for  <3,000  each. 

However,  handsets  from  a 
Japanese  manufacturer  had 
run  into  software  problems, 
although  these  were  expec- 
ted to  be  solved  in  time  for 
the  November  launch. 

Mr  Staiano  said  the  com- 
pany was  also  dissatisfied 
with  how  potential  custom- 
ers were  being  treated. 

Some  400,000  enquiries  had 
been  received,  prompted  by 


the  group’s  global  advertis- 
ing campaign,  but  the  mar- 
keting follow-up  had  been 
inadequate. 

However,  Mr  Staiano  said 
he  was  confident  that  steps 
being  taken  would  solve  the 
problem  in  time  for  the 
launch. 

The  failure  to  start  the  ser- 
vice this  month  meant  fbat 
Iridium  could  not  access  part 
of  its  Si  bn  bank  facility. 
However,  this  would  be  trig- 
gered once  tire  service  was 
launched  and  Mr  Staiano 
stud  funding  would  not  be  a 
problem  in  the  meantimn  A 
further  $l.7bn  of  funding 
was  required  for  next  year. 

He  remained  confident 
that  Iridium  would  be  cash 
flow  positive  by  the  end  of 
1999. 


esS--*  >' 


The  Brazilian  government  has  published  tender  documents 
for  the  sale  of  so-called  “mirror  licences"  to  operate  fixed 
telephone  services  in  competition  with  the  Tetebris  net- 
work privatised  in  July.  Four  licences  win  be  sold  on 
December  2 : three  for  regional  services  and  one  for  long 
distance  and  international  sendees. 

Anatel,  the  telecommunications  watchdog  responstote 
for  the  sate,  set  “reference"  prices  for  the  four  licences 
totalling  R$2-2bn  (US$1. 87bn).  The  amount  is  well  below 
the  R$5bn  the  government  said  it  expected  to  receive  for 
the  licences  before  the  outbreak  of  the  global  financial  cri- 
sis. Bidders  will  be  awarded  points  based  on  technical 
proposals  and  on  price  offered.  Points  for  price  wiU  be 
determined  by  variations  from  the  reference  price.  The 
combined  minimum  price  for  the  four  companies  is 
R$200m. 

The  companies  with  which  mirror  licence  holders  wHJ 
compete  were  sold  on  July  29  for  a total  of  R$13.94bn. 
Unlike  existing  companies,  mirror  companies  must  begin 
operating  from  scratch  and  are  not  subject  to  performance 
targets  set  for  the  former  Telebrtts  companies. 

International  operators  such  as  GTE  and  BellSouth  of 
the  US,  Deutsche  Telekom  and  France  Telecom  are  under- 
stood to  be  interested  in  bidding  for  the  licences.  One 
consortium  has  already  been  formed,  between  Splice,  the 
US  operator,  and  Inepar,  a group  of  Brazilian  investors. 
Jonathan  Wheatley,  S5o  Pa  trio 


# 


‘ff 


The  collapse  of  the  planned  merger  of  two  hotel  real 
estate  investment  trusts  (Relts)  has  prompted  concern  that 
other  Reit  deals  may  have  to  be  changed  or  cancelled,  as 
a result  of  the  sector’s  dire  stock  market  performance  in 
recent  months.  Equity  Inns,  based  In  Memphis,  Tennessee, 
called  off  its  purchase  of  RFS  Hotel  Investors,  also  based 
in  Memphis,  on  Tuesday.  The  deal  was  originally  valued  at 
$990m  including  $330m  of  debt,  but  it  was  predicated  on 
Equity  Inns’  share  price  not  falling  below  $14.  It  stood  at 
$11$  on  Wednesday.  Equity  Inns  blamed  market  condi- 
tions, and  said  the  deal  was  no  longer  in  the  best  interests 
of  shareholders. 

It  also  said  that  the  anticipated  sale  of  existing  RFS 
leases  had  fallen  through  and  the  debt  needed  to  finance 
the  transaction  had  become  more  expensive.  Analysts  said 
they  were  watching  for  problems  with  other  similar  deals, 
such  as  Cornerstone  Properties'  $1 .77bn  acquisition  of 
William  Wilson  & Associates.  Some  say  there  could  be  a 
slowdown  In  the  pace  of  acquisitions  in  the  sector,  which 
has  already  been  hit  by  a change  in  federal  tax  law  which 
eliminated  a tax  break  for  acquisitions. 

The  sector  has  fallen  from  favour  this  year,  even  before 
recent  broader  market  weakness,  as  the  supply  of  new 
property  has  slowed  the  growth  of  rent  revenues. 

Tracy  Corrigan,  New  York 


• .■***. 


ip  id)  l nion  in 


2 Ar 

■A  i » S. 


Forecast  boosts  Maytag  shares  ~ 


4 


f S^>0.0O0.0Qi 


Halifax  Pic 


US$500,000,000 

Roaring  ram  notes 
September  1999 


Notice  Is  hereby  tfvwtte 
tiw  n««  wS  bear  (manse  at 
5-59375%  par  annum  from 
10  SepteHOer  1998  » 10 
December  1998.  Interest 
payable  an  10  December  1998 
wfl  amount  tn  US$l4J4per 
USS 1 .000  note,  USS  141.40  per 
USSIOMO  note  and 
US$1,413.96  per  US$100300 
rate. 


Global  Agency  and  Trim  Service*. 
CWanJcNA.  London 
10  September  1998 

. CTTlBANi ©I* 


CREDIT  LYONNAIS 


U5$  1 00,000,000 
Roaring  rate  notes  2003 


The  notes  vriB  bear  interest  at 
528 1 25%  per  annum  for  the 
period  10  September  1998(0 
10  March  1 999.  Interest  payable 
on  10  March  1999  w9  amount 
to  USS132J6  per  US$5,000 
note  and  US$265530  per 
US$100,000  note. 


Gtebal  Agency  and  Trust  Service*, 
□titanic.  NA.  London 


10  September  1998 

, cmBAMcr 


/ 


ANZ  Banking  Group  (New  Zealand)  Limited 

(Incorporated  wtth  limited  liability  fa  New  Zealand) 

U.S.S  125,000,000 

Subordinated  Floating  Rate  Notes  doe  2005 
guaranteed  on  a subordinated  basis  by 

Australia  and  New  Zealand  RanMng  Group  limits 

A.CJV.M53S7S22 

(Incorporated  w Ui  limited  &i  tHUsy  la  the  State  qf  Victoria,  Australia) 

NOTICE  IS  HEREBY  GIVEN  that  far  Sit  lamest  Period  10th 
September,  1 99S  to  I fth  December;  1 998  tbc  Noes  will  cany  a Rfle 
of  Interest  of  6.04375%  per  cent  per  annum  with  an  Amount  of 
Interest  ofU-S.  $152.77  per  U.S.  $10,000  Note  and  U.S.  SI  .527.73 
per  US.  $100,000  Note.  The  relevant  interest  Payment  Date  will  be 
10th  December,  1998. 

The  First  National 
Bank  of  Chicago 

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COMPANIES  & FINANCE:  UK 

ENGINEERING  GROUP  PLANS  TO  TRANSFER  STOCK  MARKET  LISTING  FROM  LONDON  TO  NEW  YORK 


LucasVarity  to  move  across  the  Atlantic 


By  Andrew  Edgedtffe-Jobnsoo 

LucasVarity,  the  automotive 
components  group,  is  plan- 
ning to  transfer  Its  stock 
market  listing  from  -London 
to  New  York  in  the  hope 
that  US  investors  will  allow 
it  to  make  larger  acquisi- 
tions than  UK  shareholders. 

Victor  Rice,  chief  execu- 
tive, said  the  move  across 
the  Atlantic,  which  Is 
thought  to  be  unprecedented 
for  a FTSE  100  company, 
may  even  allow  the  group, 


capitalised  at  about  £3bn 
($4.95bn)  to  contemplate 
acquisitions  of  companies 
larger  than  itself.  He  also 
unveiled  plans  to  buy  back 
□p  to  20  per  cent  of  its 
shares,  at  a likely  cost  of 
almost  £600m. 

Mr  Rice  said  the  listing 
change  would  let  LucasVar- 
ity compete  on  equal  terms 
with  US  rivals,  which  have 
geared  up  to  fund  acquisi- 
tions in  the  rapidly  consoli- 
dating automotive  industry. 

Some  UK  analysts 


expressed  concern  that  most 
US  shareholders  would  be 
unable  or  unwilling  to  hold 
US  shares,  putting  pressure 
on  LucasVarity’s  share 
price.  Robert  Speed  of  Hen- 
derson Crosthwaite  said 
such  pressure  may  leave  the 
group  vulnerable  to  a bid. 

UK  and  US  holders  each 
own  47  per  cent  of  the  com- 
pany, which  has  underper- 
formed the  market  since  the 
1996  merger  of  Lucas  Indus- 
tries of  the  UK  and  Varity 
Corporation  of  the  US. 


Mark  Little,  an  analyst 
with  BT  Ales  Brown,  said 
UK  shareholders  would  feel 
“badly  let  down”  by  y ester- . 
day’s  news.  “If  you  were  a 
Lucas  Industries  share- 
holder. you  have  effectively 
given  your  company  to  [Var- 
ity Corporation]  and  got  nil 
premium  for  it." 

LucasVarity,  which  was 
advised  by  Morgan  Stanley 
and  Lazard  Brothers,  hopes 
to  limit  the  selling  pressure 
by  issuing  a London-listed 
security  which  could  be 


exchanged  for  US  shares 
over  the  next  18  months. 

Shareholders,  who  will 
vote  on  the  move  on  Novem- 
ber 6,  will  be  offered  one 
new  LucasVarity  Corpora- 
tion share  for  every  .10 
LucasVarity  pic  shares.  The 
new  group  will  retain  only  a 
secondary  listing  in  London. 

Two  US  shareholders  hold- 
ing 6 per  cent  of  the  stock  - 
Neuberger  & Berman  and 
Franklin  Resources  - came 
out  in  support  of  the  change. 
One  large  UK  shareholder 


backed  the  move,  but  said:  “l 
am  disappointed  they  feel 
that  UK  shareholders  would 
not  have  accepted  the  need 
for  higher  gearing." 

Mr  Rice  said  rivals  such  as 
Federal-Mogul.  TRW,  and 
Dana  Corporation  also  bene- 
fited from  a lower  cost  of 
capital  than  LucasVarity.  He 
added  that  US  automotive 
suppliers  were  typically 
comfortable  with  interest 
cover  of  just  5-10  times,  com- 
pared with  LucasVarity’s 
cover  of  1&5  times. 


Coats  Viyella  puts  plan 
for  demerger  on  hold 


By  Michael  Peel 


Coats  Viyella,  the  textiles 
and  precision  engineering 
group,  yesterday  postponed 
plans  to  demerge  its  Viyella 
clothings  and  home  textiles 
businesses  and  revealed  that 
it  narrowly  missed  falling 
into  loss  In  the  first  half  of 
this  year. 

The  group  confirmed  its 
plan  to  demerge  its  precision 
engineering  business  In  the 
second  half  of  next  year  and 
said  it  was  making  progress 
in  its  attempts  to  improve 
operating  performance. 

Last  December  the  group 
warned  that  profits  would 
suffer  an  unexpectedly  sharp 
fail  in  1997  and  said  that  it 
aimed  to  split  into  Coats  and 
Viyella  by  the  middle  of  next 
year.  Coats  was  to  comprise 
the  precision  engineering 
division  and  the  thread  and 
Indian  operations,  while 


Viyella  would  take  in  cloth- 
ing and  home  tortflpc 

Michael  Ost,  chief  execu- 
tive, said  the  decision  to 
postpone  the  demerger 
reflected  concerns  about  the 
potential  effects  on  the  share 
price  of  Viyella  of  negative 
market  sentiment  towards 
the  textile  and  retail  sectors. 
“This  is  not  a change  of 
Strategy  or  a change  of  prin- 
ciple, purely  one  of  timing. 
We  want  to  postpone  it  until 
market  conditions  are 
slightly  more  favourable." 

Analysts  queried  the 
group’s  decision.  They  said 
the  logic  underpinning  the 
demerger  was  sound,  and 
had  not  changed  since  Coats 
unveiled  the  plan.  “It’s  very 
disappointing  and  the  mar- 
ket hasn’t  taken  very  favour- 
ably to  It”  said  one. 

“Ninety-five  per  cent  of 
the  share  price  fall  will  be 
due  to  the  demerger  post- 


ponement rather  than  the 
figures.” 

Pre-tax  profits  for  the  six 
months  to  June  30  fell  from 
£4L5m  to  £L6m  (*2.6m).  The 
1998  figure  included  re-or- 
ganisation costs  of  £16.6m,  a 
£15 .3m  charge  relating  to  the 
sale  or  termination  of 
operations  at  Counterpart  a 
supplier  to  Marks  and  Spen- 
cer, and  a £i2m  charge  relat- 
ing to  a previous  goodwill 
write  off. 

Operating  profits  on  con- 
tinuing operations  fell  from 
£68-5m  to  £4S.lm,  reflecting  a 
decline  in  five  of  the  group's 
six  businesses.  The  group 
said  it  had  been  hit  by  an 
“uncertain  trading  environ- 
ment”, and  had  been  particu- 
larly affected  by  the  strength 
of  sterling  and  subdued  UK 
retail  ikmanri 

Mr  Ost  said  it  was  hard  to 
say  how  much  the  company 
was  at  fault  for  its  problems. 


IT  growth  lifts  Logica 


By  (Kristopher  nice 


Buoyant  demand  for 
information  technology 
products  and  services  across 
Europe  bellied  Logica,  the 
UK  computer  software  com- 
pany. lift  annual  pre-tax 
profits  49  per  cent  to  £41  .Sm 
(169m). 

Revenues  rose  40  per  cent 
to  £473m.  fuelled  by  strong 
growth  from  the  telecommu- 
nications and  financial  ser- 
vices markets.  The  shares 
rose  9 per  cent  to  £18J2K. 

Logica  also  increased  its 
cash  pile  six-fold  to  £54m. 
Martin  Read,  chief  executive, 
said  this  would  help  the 
company  continue  Its  active 
acquisition  policy. 

Since  the  June  30  year- 
end.  Logica  has  acquired  two 
IT  companies,  a Belgian  ser- 
vices group  and  an  Indian 
company  specialising  in 
banking  software.  Mr  Read 
said  the  US  and  Germany 
were  two  other  areas  being 
eyed  for  expansion. 

Preparations  for  the  single 


Andrew  Given,  finance  cErector,  left,  and  Martin  Read  Jason  Orton 


European  currency  stimu- 
lated an  increased  amount  of 
business,  particularly  from 
the  banking  and  retail  sec- 
tors. "Everyone  has  got 
excited  by  the  Year  2000 


problem,  but  Emu  will  be 
enormous  in  comparison," 
said  Mr  Read. 

Revenues  from  the  tele- 
communications market  rose 
39  per  cent  to  £71m. 


-COMMENT 

LucasVarity 


LucasVarity 

Stare  price  shoe  meiflar  rafefrra  to  toe 
FTSE  AH -Share  Index 


So  shareholders  are  not  the 
only  ones  who  can  vote  with 
their  feet.  But  in  an  era  of 
global  capital  flows  the  justi- 
fication for  moving -domicile 
back  to  Buffalo  looks  thin  to 
say  the  least.  Unhappy  with 
wimpish  shareholders  in  a 
London -listed  LucasVarity, 

Victor  Rice  hopes  for  a more 
macho  New  York  crowd. 

True,  US  investors  are  more 
accustomed  to  higher  lever- 
age, lower  dividend,  yields 
and  share  repurchases  as  a 
means  to  lower  companies' 
cost  of  capital.  But  with  net 
cash.  LucasVarity  has  hardly 
been  stretching  UK  tolerance 
of  gearing.  There  is  plenty  of  room  for  a more  efficient 
capital  structure  without  needing  to  cross  the  Atlantic  to 
achieve  it. 

The  notion  that  proximity  to  its  US  peers  in  the  automo- 
tive supply  sector  will  suddenly  mean  it  can  compete  more 
effectively  for  investment  and  acquisitions  seems  equally 
flawed.  European  companies  such  as  Valeo  enioy  higher 
ratings  than  their  US- counterparts  and  LucasVarity  a simi- 
lar one.  Furthermore,  with  47  per  cent  US-based  shareholder 
register,  LucasVarity  is  hardly  falling  to  attract  interna- 
tional capital  As  for  gaining  an  attractive  acquisition  cur- 
rency, surely  DaimlerChrysler  and  BP  Amoco  show  ADR 
programmes  do  the  job  pretty  effectively.  For  old  Lucas 
shareholders  who  sold  out  cheaply  in  the  merger,  watched 
the  new  shares  underperform  by  30  per  cent  and  are  now 
effectively  being  asked  to  sell  out  completely,  this  is  a sorry 
end  indeed. 

Private  finance  initiative 

Companies  involved  in  the  private  finance  initiative  must 
hope  the  government  will  not  go  cold  on  these  projects  just 
because  it  has  to  account  for  them  properly.  Private  involve- 
ment should  improve  efficiency  and  value  for  money,  mak- 
ing the  transfer  of  work  from  the  public  sector  desirable 
whatever  the  accounting  methodology.  Of  course,  the  con- 
sortia taking  on  these  projects  will  need  to  price  the  risk 
properly.  And  if  the  government  wants  to  transfer  more  of  it 
to  them,  that  element  of  the  contract  price  wifl  go  up. 

If  the  government  ends  up  keeping  more  assets,  this  could 
increase  the  equity  needs  - and  hence  the  cost  of  capital  - 
of  the  special  purpose  vehicles  set  up  for  individual  projects. 
This  may  hasten  the  formation  of  more  permanent  consor- 
tia. eventually  destined  for  the  stock  market 


Norwich  Union  in  Australian  move 


By  Russel  Baker  in  Sydney  and 
Christopher  Brtwn-Humes  in 
London 

Norwich  Union  yesterday 
moved  to  underline  its  com- 
mitment to  the  Australian 
market  by  acquiring  Portfo- 
lio Partners,  a Melbourne- 
based  fund  manager. 

Terms  of  the  deal,  which 
will  create  one  of  Australia's 


top  10  fund  management 
groups,  were  not  disclosed 
but  it  is  estimated  to  be 
worth  about  A3l25m  (377m). 
Portfolio  has  A|5.2bn  of 
funds  under  management, 
giving  the  combined  group 
funds  of  more  than  ASllbn. 
Norwich  is  under  pressure  to 
bolster  its  position  in  the 
highly-competitive  Austra- 
lian market  in  line  with  its 


commitment  to  remain 
there,  despite  the  recent 
withdrawal  of  UK  rivals  Pru- 
dential and  Legal  & General. 

Richard  Harvey.  Norwich 
Union  chief  executive,  said 
Portfolio  had  “an  outstand- 
ing performance  record  in 
equity  and  balanced  funds 
management,  which  comple- 
ments our  existing  strengths 
in  Australia".  He  said  the 


acquisition  would  support 
the  group's  efforts  “to  secure 
a leading  position  in  the 
attractive  Australian 
long-term  savings  and  pen- 
skins  markets”. 

Portfolio  Partners  was 
established  in  1994  by  David 
Slack  and  Keith  Ince.  The 
two  will  be  joint  managing 
directors  of  the  merged  busi- 
ness. 


Thistle  to  return  £ 185m  to  holders 


By  Scheherazade  Daneshkhu 

Thistle  Hotels,  in  which 
Brierley  Investments  of  New 
Zealand  bolds  a 46  per  cent 
stake,  is  to  return  £185m 
($305m)  to  shareholders,  a 
month  after  plans  to  sell  the 
UK's  second  largest  hotels 
company  fell  through. 

It  also  announced  a fall  in 
pre-tax  profits  from  £38.1m 


to  £17.3m.  Exceptional 
included  a £3tm  provision  on 
the  sale  last  week  of  30 
hotels  for  £66m  to  Psmco,  a 
subsidiary  of  Lehman 
Brothers,  the  US  investment 
hank. 

Operating  profits  for  the  28 
weeks  to  July  12  of  £57.lm 
compare  with  £55m  last 
time.  Operating  profit  mar- 
gins increased  by  9 per  cent. 


The  disposal  will  help  fund 
the  return  by  November  of 
the  first  tranche  of  £9Qm  to 
shareholders.  The  balance  of 
£95m,  to  be  returned-  In 
April,  will  be  financed  via 
increased  borrowings. 

Occupancy  rates  in  Lon- 
don fell  from  754  to  73.6  per 
cent  as  more  tourists  from 
continental  Europe  were 
deterred  by  the  strength  of 


the  pound  and  fewer  trav- 
elled from  Asia. 

Rodney  Price,  chairman, 
said  the  general  economic 
outlook  was  less  favourable 
than  six  months  ago  but 
there  was  further  opportu- 
nity to  improve  the  group's 
performance. 

Net  debt  of  £366m  (£374m) 
gives  gearing  of  28  per  cent 
The  shares  rose  3p  to  157%p. 


July  1998 


ALfMENTOS 


Ceval  Alimentos  S.A. 


US  $500,000,000 

Secured  Amortizing  Trade  Finance  Facility 


Arrangers 

Chase  Securities  Inc. 
Credit  Suisse  First  Boston 
Warburg  Dillon  Read  LLC 


Co- Arrangers 

Banco  Bradesco  S A - Grand  Cayman  Branch 

Bank  of  America  NT&SA 
Banque  Nationate  de  Paris 
Credit  Lyonnais  - New  Yoric  Branch 
Deutsche  Bank  AG 

Co-Agents 

Bank  of  Nova  Scotia 
Bayerische  Vereinsbank  AG, 

New  York  Branch 

Co-Managers 
Citibank  NA 
Comerica  Bank 
Erste  Bank 

Participants 
RZB  Finance  LLC 


Administrative  Agent 

The  Chase  Manhattan  Bank 

Syndication  Agent 

Warburg  Dillon  Read  LLC 
Documentation  Agent 
Credit  Suisse  First  Boston 

Dresdner  Kieinwort  Benson 
Natexis  Banque  - BFCE, 

Sao  Paulo  Commodities  Desk 

Greenwich  NatWest 
Societe  Generate 


Commerzbank  AG,  New  York  Branch 
WestLB/BEAL 


ING  Barings 
KBC  Bank  N.V. 


Banco  Espirito  Santo  e Comercial 
de  Lisboa,  Nassau  Branch 


CHASE 


CREDIT 

SUISSE 


Warburg  Dillon  Read 


. A »V.' 


v 'Ms: 

'r-V 

Electronic  Controls  ond  Communications 


Rockwell  Collins  avionics  products  and  systems  are 
on  most  aircraft  built  by  Boeing  and  Airbus. 


You  succeed.  We  succeed. 

http://www.rockwell.com  : 


Opposition  to 
Man  Utd  bid 
increases 


By  Susanna  Voyte,  Cathy 
Newman  and  David  Wighton  in 
London  and  Sheila  Jones  In 
Manchester 

Serious  opposition  mounted 
yesterday  to  the  £623.4ra 
($1.03bn)  bid  for  Manchester 
United  football  club  by 
BSkyB,  the  satellite  broad- 
caster controlled  by  Rupert 
Murdoch’s  News  Corpora- 
tion. 

PDFM,  the  club's  largest 
institutional  shareholder, 
voiced  concern  about  the 
240p-a-share  deal  and  Lord 
Hollick.  who  advises  the  gov- 
ernment on  competition  mat- 
ters, said  it  raised  serious 
issues. 

Meanwhile,  it  became 
clear  that  the  Manchester 
United  board  had  been  split 
over  the  deal,  with  serious 
doubts  about  the  wisdom  of 
accepting  an  offer  from 
BSkyB  pushing  the  negotia- 
tions to  the  eleventh  hour  on 
Tuesday  night. 

Last  night,  fans  angry 
because  they  felt  their  club 
had  been  sold  out  to  Mr  Mur- 
doch, protested  outside  the 
ground. 

While  BSkyB  and  United 
both  spent  yesterday  insist- 
ing that  Mr  Murdoch  had 
had  nothing  to  do  with  the 
negotiations,  it  emerged  last 
night  that  he  had  been 
involved.  Mr  Murdoch,  in 
London  for  the  funeral  of  fel- 


Murdoch  teams  up  with  value  while  ^educing  BSkyB’s  risk 


Tony  Jackson  analyses  the  economic  motive 

n strictly  financial  terms,  are  also  in  a period  of  unpre- 
Rupert  Murdoch's  conten-  dictable  change.  With  typical 


at  the  heart  of  the  Manchester  United  deal 

the  present  system  is  still  in  fore  increase  the  power  of 


f tious  purchase  of  Mhnches-  adroitness.  Mr  Murdoch 
ter  United  raises  one  obvious  seems  to  have  come  up  with 


low  media  baron  Lord  Roth- 
ermere,  called  United  chair- 
man Sir  Roland  Smith  to 
break  a "small  deadlock". 

United  shareholders  have 
been  offered  either  cash  or 
cash  and  shares  combined. 
The  combined  deal  offers 
120p  cash  and  0.2537  of  a 
BSkyB  share  for  each  United 
share  they  hold.  The  offer  is 
a premium  of  51  per  cent  to 
the  closing  price  of  United 
shares  at  the  end  of  last 
week,  just  before  news  of  the 
deal  became  public. 

PDFM,  which  owns  just 
over  4 per  cent  of  United, 
said  it  was  “slightly  disap- 
pointed" about  the  deal.  “We 
felt  [Manchester  United  1 had 
a very  strong  future  if  it 
remained  independent."  an 
executive  said,  adding  that 
PDFM  might  vote  against. 

Lord  Hollick,  chief  execu- 
tive of  media  conglomerate 
United  News  & Media,  a 
rival  to  BSkyB.  said  the  deal 
- on  which  he  will  not 
directly  advise  - was  an 
example  of  vertical  integra- 
tion. “You  have  in  Sky  the 
monopoly  supplier  of  pay  TV 
in  the  UK,"  he  said.  “Man- 
chester United  is  the  most 
prized  asset  in  the  whole 
[television]  rights  debate." 

The  Office  of  Fair  Trading 
yesterday  launched  its  inves- 
tigation. the  results  of  which 
should  be  delivered  within 
two  months. 


question.  British  Sky  Broad- 
casting is  paying  240p  apiece 
for  shares  which  last  week 
were  worth  IGOp.  The  differ- 
ence is  a little  over  £200m. 
What  does  Mr  Murdoch  get 
for  his  money? 

For  some  of  the  deal’s  fans 
- and  opponents  - the 
answer,  that  gives  him  an 
arm-lock  on  television  rights 
for  the  world's  most  profit- 
able football  club. 

Bui  for  the  time  being. 
BSkyB  has  that  anyway.  It 
has  exclusive  rights  to  live 
broadcasting  of  UK  Premier 
League  games  until  2001. 
Why  then  is  Mr  Murdoch 
paying  ££00m  for  something 
he  already  owns? 

The  answer  comes  down  to 
a single  word:  insurance. 
The  economics  of  football 
are  of  central  importance  to 
the  pay-TV  industry.  They 


a way  of  insuring  against  a 
range  of  outcomes. 

The  biggest  uncertainty 
lies  in  the  form  that  negotia- 
tions between  football  clubs 
and  the  TV  networks  are  to 
take  in  future.  At  present, 
all  2Q  teams  in  the  Premier 
League  - of  which  Manches- 
ter United  is  the  most  power- 
ful - deal  with  the  networks 
collectively. 

That  solidarity  is  under 
strain.  In  some  other  Euro- 
pean countries,  the  top  clubs 
do  individual  deals  with  the 
networks,  thus  greatly 
increasing  Income  at  the 
expense  of  lesser  brethren. 

In  addition,  the  UK  author- 
ities will  shortly  examine 
the  present  system  to  see  if 
the  Premier  League  clubs 
are  acting  as  a cartel. 

Either  way.  Mr  Murdoch 
has  strengthened  his  hand.  If 


place  in  2001,  BSkyB  will 
control  one  of  the  20  dubs 
negotiating  with  the  net- 
works. and  will  thus  have 
inside  information. 

But  if  negotiations  are  on 
a club-by-club  basis,  BSkyB 
will  again  be  the  strongest 
contender.  After  all,  it  will 
own  the  dub  which.  In  box- 
office  terms,  all  the  others 
will  want  to  play  against 

There  is  a third  possibility 
in  the  air  that  of  a European 
super  league,  in  which  Man- 
chester United  would  join  a 
handful  of  its  European 
peers  to  wring  out  yet  more 
revenue  at  the  expense  of 
lower-ranked  clubs.  Mr  Mur- 
doch would  be  party  to  both 
sides  of  the  negotiations. 

There  are  other  imponder- 
ables. The  launch  of  digital 
terrestrial  TV  in  the  UK 
later  this  year,  with  its  myr- 
iad channels,  will  greatly 
Increase  the  demand  for  new 
programming:  It  will  there- 


content  providers  - such  as 
Manchester  United  - against 
that  of  channel  providers  - 
such  as  BSkyB. 

Also,  the  UK  is  still  await- 
ing the  arrival  of  pay-per- 
view  TV  on  the  continental 
model.  This  system  pays 
dubs  according  to  the  num- 
ber of  people  watching  each 
game;  and  Manchester 
United,  as  the  UK's  most 
popular  dub.  would  be  the 

chief  beneficiary. 

In  terms  of  the  opening 
question,  those  two  points 
are  less  relevant.  They 
should  have  been  in  the 
price  all  along;  and  there  is 
no  reason  to  suppose  that  Mr 
Murdoch,  far  all  his  astute- 
ness. has  a better  crystal 

hail  than  the  market. 

Since  news  of  the  deal 
broke,  BSkyB 's  market  value 
has  risen  by  more  than 
£300m. 

So  far,  at  least,  Mr  Mur- 
doch is  ahead. 


Martin  Edwards,  chief  executive  of  Manchester  United 


Fans  fear  the  final  curtain  at  Theatre  of  Dreams’ 


By  Sheila  Jones 

Manchester  United’s  fans  are 
not  happy.  They  daubed  slo- 
gans on  United  posters  at 
the  Old  Trafford  ground  yes- 
terday protesting  against  a 
BSkyB  takeover  of  United. 

Andy  Walsh,  leader  of  the 
Independent  Manchester 
United  Supporters  Associa- 
tion. promised  that  the  bid 


would  be  opposed  “tooth  and 
nail" 

“The  phones  have  not 
stopped  ringing  with  fans 
offering  to  help  the  cam- 
paign against  this  bid,"  said 
Mr  Walsh,  whose  organisa- 
tion has  2,500  members  and 
claims  to  speak  for  many 
more. 

Rupert  Murdoch,  he  said, 
knew  “the  price  of  every- 


thing and  the  value  of  noth- 
ing. This  club  is  not  to  be 
sold  like  some  second-hand 
Jag  by  Martin  Edwards  and 
his  cohorts  on  the  board." 

Small  shareholders,  who 
collectively  own  about  20  per 
cent  of  United,  yesterday 
stepped  up  their  campaign 
against  the  bid. 

Richard  Lander  of  Share- 
holders United  Against  Mur- 


doch, said  the  group  was  try- 
ing to  contact  as  many  small 
Investors  as  possible  to 
oppose  the  bid.  “This  is  a 
very  bad  day  for  football." 

The  group  wants  the  bid 
referred  to  the  Monopolies 
and  Mergers  Commission.  “It 
would  give  BSkyB  a terrible 
amount  of  influence  over 
football  and  over  United," 
added  Mr  Lander.  “They  will 


pick  the  players  most  likely 
to  boost  the  TV  ratings 
rather  than  the  players  best 
for  the  team." 

The  Manchester  Evening 
News  ran  headlines  saying 
“the  dream"  was  over.  The 
day  the  deal  was  finalised 
would  be  “the  day  that  foot- 
ball died  at  Old  Traf- 
ford ...  the  day  when  the 
Theatre  of  Dreams  ceases  to 


exist".  The  newspaper  ran  a 
phone-in  poll  which  it  said 
showed  that  96  per  cent  of 
fans  were  against  the  deal. 

Even  Manchester  City  sup- 
porter Colin  Johnston.  26, 
set  aside  his  natural  rivalry. 
“I  think  it's  absolutely 
wrong,"  he  said.  “Martin 
Edwards  hasn't  asked  the 
supporters  what  they  think. 
He  doesn't  care  about  them." 


ABP  puts  focus  on  terminals 


By  Charles  Batchelor 

Associated  British  Ports,  the 
UK's  largest  ports  operator, 
hopes  to  take  over  running  a 
second  terminal  later  this 
year  as  part  of  its  move 
away  from  being  simply  a 
port  “landlord".  Sir  Keith 
Stuart,  chairman,  said  yes- 
terday. 

The  company  took  on  its 
first  terminal  in  May  when  it 
bought  Exxtor  Shipping  Ser- 
vices, which  operates  a 
roll-on,  roll-off  terminal  at 


Immingham.  A total  of  20 
terminals  at  ABP's  ports, 
currently  operated  by  ship- 
ping companies,  trading 
groups  or  manufacturers 
such  as  British  Steel,  are 
potential  targets. 

A total  of  20  terminals  at 
ABP's  ports,  currently  oper- 
ated by  shipping  companies, 
trading  groups  or  manufac- 
turers such  as  British  Steel, 
are  potential  targets. 

The  company  took  on  its 
first  terminal  operation  in 
May  following  its  acquisition 


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If  you  would  like  to  advertise,  or  require  any 
further  information,  please  contact: 
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Tel:  0171-873-4928  Fax:  0171-873-4296 


of  Exxtor  Shipping  Services, 
which  operates  a ro-ro  termi- 
nal at  Immingham,  Lincoln- 
shire. 

Overseas,  ABP  plans  to 
make  American  Port  Ser- 
vices. the  US  car  terminals 
group  that  it  acquired  in 
June,  the  main  focus  of 
expansion,  though  It  is  also 
taking  a cautious  look  at 
some  of  the  ports  being  pri- 
vatised around  the  world. 
APS  is  also  looking  to  estab- 
lish car  terminals  in  Brazil 
and  Chile. 


In  the  first  half  of  1998 
ABP  reported  an  11  per  cent 
increase  in  pre-tax  profits  to 
£57m  on  turnover  which  rose 
by  33  per  cent  to  £171  Bm. 

ABP  is  ahead  of  schedule 
in  its  disposal  of  non  port-re- 
lated property  with  £77m 
achieved  and  the  remaining 
£43m  expected  to  be  com- 
pleted by  the  end  of  the 
year. 

It  spent  £42m  buying  back 
its  shares  and  will  continue 
to  make  purchases  towards 
its  £100m  target. 


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REAL-TIME  DAW  ON  lTOUSPC 

equities*  um + options +do1ntlres*  bomb +i»«nuiodlte 
AU  AMERICANS  * FOREX  * EUROPEANS  * NEWS  * CHARTS 


IN  YOUR  COUNTRY  NOW 
70  Countries  aeross  Europe,  the 
Middle  East  and  Africa  - from  Iceland 
to  Moscow,  from  Finland  to  Yemen 


RESULTS 


Almanrh  & Bond  $ 
Albright  & Witoa  „ 

Assoc  Brit  Parti  

Boozer  .......... 

Bostrom 

British  Fittings  

Deration 

City  Centro  . 

Clarkson  (Horace)  _ 
Coats  Vryeia  

Dene  ■■■■. 

DmoDcS  Geo 

Dntid 

Eade  Holdings 

FBD  Hobtetgs  f 

Baarhoese 

Gtjumd  Intt 

G&rtm  

Wscok 

teter-AHuce  $ — — 

KS  Biomedb  <J>  

Logics  - — 

London  FtirfaUng  _ 

LucasYarity 

fop&de  Tberapeiris_ 

PBlnfl 

Prenrier  Oi  .............. 

Prime  People  — — 

PSD 

Qrafceram  X 

Rugby  

Bossofl  (Afex) 

SffT ........... 

S6B  ♦ 

Slgnrt 

Stat  Plus 

Tetapec 

Tengns 

TUsUe  Hotels 

United  News  & Med  . 


Pro-tax 
profit  (Ed) 


Dividends -- 

Corresponding  Total  Mr 
year 


— Yr  to  Jine  30 
. 6 mats  to  Jun  30 
. 6 mtfts  to  Jun  30 
_ Yr  to  Jun  30  * 

, 6 mths  to  Jun  30 
, B mths  to  Jun  30 
. B mlhs  to  Jun  30 
. 6 mths  to  Jun  30 


Jan  31  □ 
Nov  25 
Nov  2 
Nov  16 
Dec  2 
Nov  20 
Nov  9 
Oct  14 


6 mths  to  Jui  30 

14.4 

(165) 

15 

(15) 

35* 

(4.7  J 

1.5 

Oct  16 

15 

- 

4 

6 mths  to  Jun  30 

15*1 

(1.134) 

1.66 

(4154) 

4.3L 

(3.4  ) 

15* 

Dec  23 

3.7* 

- 

*7* 

6 mths  to  Jun  30 

131 

(141  ) 

235 

(255) 

95 

(105) 

35 

Da  23 

3.1 

- 

95 

Yr  to  Jun  30 

92 

(845) 

14.6 

Cl  2-7) 

2956 

(2556  ) 

755 

Nov  19 

6.6* 

11.15 

95* 

Yr  to  Jun  30 

40.6 

(22-1  ) 

8.04 

(5) 

2357 

(1354  j 

2.6 

- 

2.1 

3.85 

2.9 

6 mlhs  to  Jun  30 

124 

(175  ) 

0583 

(0.53) 

0J1 

(0.48) 

05 

Dec  IS 

m 

- 

0.2 

6 mtlu  to  Jun  30 

82.1 

(75) 

959 

(7.77) 

20.6 

(1551  ) 

4.45 

Oct  17 

3.7525 

• 

B.7525 

Yrto  Jun  30 

67.1 

(475  ) 

653 

(5.06  ) 

255t 

(245  ) 

5 

Dec  4 

4.6 

7.6 

7 

fi  mthsto  Jun  30 

552 

(632  1 

2554 

(435) 

55 

(125) 

4 A 

Dec  2 

4.4 

- 

135 

6 mthsto  Jun  30 

19.4 

(18.8  ) 

1.89 

(159] 

653 

(5.79) 

25 

Oct  9 

2 

- 

5.13 

6 mths  to  Jun  30  99.5f 

(79.4?) 

0535 

(0.927L) 

0.4f 

(0.71) 

15 

Oct  30 

1.1 

- 

3.3 

6 mths  to  June  30 

Yr  to  May  31 

YrtoJisi  30 

. 6 mths  to  Jun  30 

- 6 mths  to  Jut  31 

- 6 mthsto  Jun  30 
— Yr  to  Jun  30 
.6  mthsto  Jui  30 
. 6 mthsto  Jun  30 

- 6 mths  to  Jun  30 
.6  mthsto  Jun  30 

- 6 mthsto  Jun  30 
. 6 mths  to  Jun  30 
. 6 mths  to  Jim  30 
. 0 mths  to  Jun  30 
..  6 mths  to  Aug  1 
. 6 mths  to  Jun  30 
6 mths  to  Juie  30 
6 mths  to  June  30 
28  wks  to  July  12 
6 mths  to  June  30 


CtmwponBng  Total  Mr 
ijMdeod  year 


, , . . „ , AUilMitaWe  Curem  Data  of  CoiecponSng  Total  Mr  Tow  las 

Investment  Tunis WAV  (p)  Earofagt  (Bn) 8*5  (p) payroml  (p)  paymert  iMleod  year  yea1 

FraitetogtDfl  Dual  Yr  to  July  31  298.4  (203.1  ) 155  fl.85  ) 6.74  (7.18  ) 2.05  Nov  5 2 7.6  7 25 

Johnson  Fry  Fpeu Yf  to  July  31  268.15  (149.48)  0.730  (0.489  ) 655  (459  ) 3.6  Oct  15  35  5.9  5.4 

ftwstnr  VCT 6 mths  to  July  31  108.4  (101-7 ) 0514  (0580 ) 153  (150 ) 05  Oct  1 a75  - 2 

fammos  shorn  basic.  Dividends  drawn  net.  Figures  In  brackets  are  tor  cufrespondlng  period.  X After  excspttand  charga.  VAIter  exceptional  craflL  tOn  Increased  caittaL 
$Alm  dock.  *0n  rediajd  capital.  *Afiusted  tor  scrip  issue.  Im  currency.  DNo  later  than.  * Comparatives  restated,  fctaetgn  income  Dividend  **Hnal  ptod  as 
foreign  Income  dividend.  ♦Comparatives  pro  forma.  TToM  written  premiums. 

MR  A P HADDOCK  — 

UttuT  1 Wamthcc.  Iiil— .VllUDD 
TM  MjnCf  Out  n pocnAon  omuthupI  «hj 
mu  ■ rt*  Caut  J tmt.  Oowb  t Bnck  Ongg. 
lyuriumdi  Dm  Kaery.  n n*m» 

Ha  00011  by  Wjw»Ur»*«i  Compu-  Lmud 
•Jmr  mnl  At  k i Itafcrt*  SMB.  Non™*. 

QgfcAi MS  tew  MfVlII— ilwmAdw 

UFOwllSfC «(«Mn cl  IKOANOnrON  ' 9 

mmmm  PremierOil 

d>irjadiyy>itla<re>ilKMal«haiba«UU  m 

n IS  OSKSto  dot  nten  oAckm  com  m ihe 

SESEBfiESSBSn  ,NTBMM  "esults  isss 

tfdoti.  d>r  [MritWi  m ■ Ac  tad  Ml 
u4 1 H vimA  (fail  la  Ac  mw  a 4a,  load 

*»jpl  Ac  ta  

1998  HAS  BEEN  PREMIER'S  MOST  SUCCESSFUL  YEAR 

FOR  exploration  and  business  development 

AM>  FLSnSVNI  fom  Om  t Ho  bn  cnbrrd 
luwta  ot  Or  ertr  la  #•  tad  »w  on  jtu  tw 

anMxmun 
W WTBacyrWHWllltOel  I* 

nSlSSS  s»p»*«  iw  • Not  Profits  after  Tax  of  £3.1  million 


www.dbcciiro.com  Tel  +44 171  793  3100 


Financial  Times  Surveys 

Bosnia- 

Herzegovina 

Tuesday  October  13 


For  further  information 
please  contact: 

Zeljho  Paul  Mandic 
Tel:  4-44  1962  S89  2SS 
Fax:  t-44  19G2  889  209 

Ewa  Placzck-Neves  in  London 
Tel:  j-44  171  373  3725 
Fax:  ^-44  171  873  3934 
Enuii:  fwa.pljcj:ck-nt»e v*fT.com 


Annette  Ebert  in  Frankfurt 
Tel:  +49  69  156  85  163 
Fax:  -49  69  596  44  31 

Email:  aiiiiettc.cbcrtiJFT.coni 

FINANCIAL  TIMES 

No  FT.  rro  comment- 


PremierOil 


INTERIM  RESULTS  1998 


1998  HAS  BEEN  PREMIER’S  MOST  SUCCESSFUL  YEAR 
FOR  EXPLORATION  AND  BUSINESS  DEVELOPMENT 


• Not  Profits  after  Tax  of  £3.1  million 

■ Cash  Row  for  reinvestment  of  £34.3  million 

• Anticipated  Oil  & Gas  reserve  additions  from  1 998  drilling  to 
date  of  130  million  barrels  of  oil  equivalent  - a 39%  increase 

• The  newly  formed  Premier/ Shell  joint  company  in  Pakistan 
holds  the  leading  position  in  this  high  gas  demand  market 

• Indonesia  and  Singapore  agree  22-year  gas  sales  from  the 
West  Natuna  Sea  Group,  in  which  Premier  has  a 30%  interest 

• Significant  exploration  success  in  Pakistan  gas 

• Bated  oilfield,  Iran  - entry  into  low  cost  Middle  East  oil 


Chafes  Jamieson,  Chief  Executive,  commented: 

"In  the  first  half  of  1998  Premier  has  had  outstanOng  expfotation  success  and 
has  further  strangthenod  its  significant  position  in  PeJdsten,  Myanmar  and 
Indonesia. 

Premier*  strategy  of  developing  markets  for  long  term  Asian  gas  assets  and 
kw  cost  oB  In  the  MkkBe  East  enhances  our  abffiy  to  operate  in  the  cyclical 
oil  environment  It  wW  provide  sustainable  cash  flows  during  the  downturns 
and  robust  ipsfcte  during  the  upturns.’ 


For  further  Information,  please  call  Ptemlef  Ofl  at  +44  fO)  171  7301111 


ICil  t rc  nf  Droa®, 


M 

'i#  >1-  / 

• '..V 

♦ . •■>*-  * ■ •"• 
«*v.  "i.- 
*:  ' * — 


&kv*&rJ\  >* 


Brussels  prepares  for  battle  with  London 


Europe’s  challenge  to  the  benchmark  Libor  rate 
could  deprive  the  City  of  an  important  financial 
brand  image,  writes  Edward  Luce 


fliMJ 

m** 


^£1 


Battle  lines  are  being  drawn  for  a 
fierce  tussle  between  London  and 
continental  banks  next  January 
in  the  hitherto  dry  and  uncon- 
troversial  world  of  money  market 
reference  rates. 

Libor  - the  London  Interbank 
Offered  Rate  — has  for  years  been 
the  undisputed  benchmark  for 
international  transactions  in 
most  of  the  world's  currencies.  Of 
the  important  currencies,  only 
the  French  franc  and  - in  its 
domestic  market  - the  Japanese 
yen  could  claim  to  have  success- 
ful benchmarks  that  are  calcu- 
lated in  their  domestic  capitals 
(Pibor  and  Tfbor). 

All  this  could  be  about  to 
change.  Europe's  leading  conti- 
nental banks  hope  to  take  advan- 
tage of  the  UK's  decision  to  opt 
out  of  the  first  wave  of  European 
monetary  union  to  sponsor  a 
rival  benchmark  rate  of  their 
own.  The  rate,  which  will  be 
known  as  Euribor,  will  be 
launched  on  4 January.  At  the 
same  time,  Libor’s  ecu  rate  will 
be  converted  into  euros. 

Given  the  political  capital  that 
has  been  invested  in  the  success 
of  Euribor  (a  number  of  Euro- 
pean central  banks  have  been 
campaigning  behind  the  scenes 
for  the  adoption  of  the  bench- 


How  to  deal  with 
currency  conversions 


mark),  the  battle  is  an  important 
one.  Is  Euribor  likely  to  topple 
Libor?  And  if  so.  would  the  adap- 
tion of  Euribor  harm  London's 
position  as  the  leading  financial 
centre  in  Europe? 

Market  players  appear  to  be 
split  on  which  rate  is  likely  to 
succeed.  Broadly  speaking.  Libor, 
which  is  determined  on  a daily 
basis  by  the  British  Bankers' 
Association,  baa  incumbency  on 
its  side.  As  the  reference  rate  for 
most  floating  rate  dollar  and 
D-Mark  transactions  (and  a host 
of  less  important  currencies)  the 
London  rate  has  little  to  prove. 

The  rate  is  based  on  daily 
quotes  from  16  international 
banks,  with  the  highest  and  low- 
est four  being  eliminated,  and  is 
almost  universally  accepted.  No 
one  disputes  Libor’s  accuracy.  No 
other  financial  centre  has 
attempted  to  compete  with  Libor 
except  on  its  domestic  currency. 

Moreover,  London  is  clearly 
the  centre  of  offshore  interna- 
tional finance,  with  the  world's 
largest  money  and  foreign 
exchange  markets.  This  makes 
London  the  most  liquid  - and 
therefore  the  most  price  sensitive 
- financial  centre  in  Europe  and 
probably  the  world.  Emu  is 
unlikely  to  change  this  Indeed, 


judging  by  the  recent  hiring 
spree  of  US  investment  hanks  in 
London,  Emu  could  even 
enhance  London’s  primacy  vis-a- 
vis  Frankfurt  and  Paris. 

Defenders  of  labor  also  point  to 
its  relative  simplicity.  Unlike 
Euribor,  which  will  be  calculated 
from  a panel  of  57  (mostly  Euro- 
pean, banks)  the  BBA  is  under  no 
political  pressure  to  choose  or 
omit  certain  hanks.  It  simply 
chooses  the  16  most  creditworthy 
and  internationally  liquid  hanks 
in  the  relevant  currency. 

Euribor,  on  the  other  hand, 
will  be  based  partly  on  a quota 
system,  which  means  banks  from 
every  Emu  member  state  must  be 
included.  Some  believe  this  could 
lead  to  confusion,  with  banks 
based  as  far  apart  as  Lisbon  and 
Helsinki  phoning  in  their  daily 
quotes.  Others  say  it  will  lower 
the  average  credit  rating  of  the 
pang],  thus  producing  a margin- 
ally higher  reference  rate  than  its 
competitor  in  London.  Borrowers 
would  then  naturally  choose  to 
price  offerings  off  the  cheaper 
rate  calculated  In  London. 

Officials  at  the  European  Bank- 
ing Federation  in  Brussels  (the 
main  sponsor  of  Euribor)  reject 
these  suggestions  and  point  out 
that  the  highest  and  lowest 
15  per  cent  of  quotes  will  be 
eliminated,  thus  reducing  the 
scope  for  volatility.  Moreover, 
one  of  the  effects  of  Emu  will  be 
to  create  a genuine  cross-border 


capital  market  in  Europe  that 
will  make  physical  distance  irrel- 
evant They  also  point  out  that  a 
recent  survey  by  Intercapital 
Data  showed  70  per  cent  of  Euro- 
pean banks  planned  to  adopt 
Euribor  rather  than  Libor  as 
their  main  reference  rate. 

Is  it  possible  the  two  rates 
could  co-exist,  one  for  the  off- 
shore market  the  other  for  the 
onshore  market?  Few  believe  this 
is  a long-term  prospect  Given  the 
possibility  that  the  two  rates 
could  occasionally  diverge,  banks 
and  corporations  will  be  reluc- 
tant to  duplicate  back-office  doc- 
umentation by  basing  their  trans- 
actions on  both  reference  rates. 

“With  the  year  2000  problem 
and  the  conversion  to  the  euro, 
our  technical  staff  have  enough 
worries  to  start  worrying  about 
matching  up  alternative  money 
market  rates,”  said  Edward  Con- 
don, head  of  derivatives  at  CSFB. 

Bob  Blower,  banking  markets 
manager  at  Reuters,  predicts  the 
market  will  quickly  opt  for  one 
rate  or  the  other.  “It  is  too  much 
of  a back-office  nightmare  to 
keep  both  rates  alive  simulta- 
neously,” he  said.  “The  tendency 
will  be  to  opt  for  one  rate  and 
this  will  happen  more  quickly 
than  people  expect." 

Given  the  pressure  on  Euro- 
pean banks  to  adopt  Euribor  (not 
least  the  57  that  will  make  up  the 
panel)  many  are  betting  that 
Euribor  will  eventually  predomi- 


nate. “Nothing  has  been  put  in 
writing  but  we  have  been  told  [by 
government  officials]  that  we  will 
not  be  popular  if  we  continue  to 

use  Libor.”  said  an  official  at  a 
German  bank.  “European  govern- 
ments are  setting  great  store  in 
the  prestige  of  Euribor.” 

Assuming  - a big  assumption  - 
Euribor  prevails,  London  would 
be  affected  on  at  least  two  fronts. 
First  it  would  give  a competitive 
edge  to  the  Deutsche  Termin- 
borse,  Frankfurt's  derivatives 
exchange,  in  its  rivalry  with 
LifTe,  the  London  International 
Financial  Futures  and  Options 
Exchange.  Liffe  plans  to  base  its 
money  market  euro  contracts  on 
Libor.  The  DTB  bas  somewhat 
nervously  hedged  its  bets  and 
plans  to  launch  contracts  based 
on  both  Euribor  and  Libor.  Nev- 
ertheless. Liffe  would  be  tbe  clear 
loser  if  Libor  was  rejected  as  a 
benchmark. 

Second,  tbe  loss  of  Libor  would 
deprive  London  of  an  important 
brand  image,  at  least  in  the 
euro-denominated  markets. 
Whether  this  would  have  a tangi- 
ble impact  on  the  physical  pres- 
ence of 'money  and  capital  mar- 
ket operations  in  London  is 
unclear.  Most  believe  the  broader 
effects  would  be  negligible.  How- 
ever, brand  images  are  impor- 
tant. And  if  there  was  a tangible 
impact,  it  would  almost  certainly 
detract  from  London’s  competi- 
tive position. 


Still 


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A manager's 
guide  to 
the  euro 

I want  to  prepare  my 
company  to  handle 
currency  conversions 
Involving  the  euro  when  it 
comes  into  existence  on 
January  1,  This  sounds 
easy.  Is  It? 

Unfortunately  not  In  its  first 
few  yeas  of  existence,  the 
euro  will  be  unHke  any  other 
currency,  making  conversion 
calculations  complicated. 

What's  the  problem? 
Between  1999  and  tbe  first 
half  of  2002.  it  will  co-exist 
with  the  national 
denominations  of  the  states 
joining  monetary  union.  The 
European  Union  has  decreed 
that  during  this  period  the 
system  will  operate  under 
the  rule  of  “no  compulsion, 
no  prohibition".  This  means 
that  everyone  paying  for 
something  in  the  eurozone 
can  do  so  either  in  euros  or 
national  denominations. 

Why  is  that  such  a big 
deal?  The  euro  and  the 
national  currencies  will 
have  a fixed  conversion 
rate.  Surely  I can  just 
punch  this  number  into  my 
computer  and  apply  it  to 
every  transaction? 

Wrong  again.  European 
regulations  specify  an  exact 
and  complicated  way  of 
converting  book  entries, 
payments,  etc  - and  you 
must  adhere  to  the  roles. 

So  what  are  they? 

First,  you  must  use  the 
official  euro  conversion 
rates:  that  is,  the  rates 
between  the  euro  and 
national  denominations, 
which  win  not  be  known  until 
the  aid  of  this  year.  You  will 
have  to  apply  these 
conversion  rates  precisely, 
to  six  relevant  digits.  You 
should  be  aware  that  some 
computer  software,  including 
some  old  a-  versions  of 
popular  spreadsheet 
programs,  may  not  be 
capable  of  handling  this  type 
of  calculation.  You  should 
follow  the  mathematical 
rounding  role  that  a value  of 
0.005  should  be  rounded 
upwards  to  0.01.  And  you 
should  under  no 
circumstances  use  bilateral 
conversion  rates  - for 
example,  converting  francs 
directly  into  D-Marks. 

Why  not?  K would  make 
Ufe  a lot  easier  if  I did  not 
have  to  go  through  the 
euro  each  time, 
it  would,  but  the 
accumulated  rounding  mors 
would  become  significant  if 
you  took  this  approach.  A 
bilateral  rate,  of  course,  is 
only  the  product  of  two  euro 
rates.  But  toe  product  of  two 
six-digit  figures  has  almost 
always  more  than  six  digits, 
no  matter  whether  the 
figures  have  no  decimal 
points  or  five.  So  you  would 
lose  precision  if  you  opted 
for  bilateral  rates. 

So  how  do  I get  from 
francs  to  D-Marks? 

Through  a principle  called 

Wangulatjon.  This  means 

you  convert  francs  into 
euros,  and  euros  into 
D-Marks,  and  each  time  you 
apply  the  six-digit  rule.  This 
frieais  that  every  conversion 


between  two  national 
denominations  involves  two 
calculations. 

How  do  I convert  long  lists 
of  items  from  a national 
domination  into  euros?  Do 
I translate  each  entry  and 
then  add  them  together,  or 
do  I add  them  up  first  and 
then  convert? 

The  rule  is:  add  first,  and 
then  translate  sub-totals 
and/or  totals.  The  idea  is  to 
minimise  rounding 
differences. 

Surely  these  rounding 
differences  don't  matter? 
They  are  just  pfennigs, 
centimes  mid  pennies. 

They  do.  Say  you  Invoice  a 
customer  In  euros,  and  the 
customer  pays  in  francs. 
There  is  a good  chance  that 
if  you  reconvert  tbe  francs 
back  Into  euros,  you  end  up 
with  a small  rounding 
difference  between  the 
payments  received  and  the 
original  Invoice  total  Your 
computer  would  not 
normally  match  the  two 
items  unless  they  were 
identical.  This  means  that 
you  have  to  set  tolerance 
levels  for  your  computer 
systems,  and  install  write-off 
policies  to  deal  with  losses 
due  to  rounding  differences, 
even  If  the  losses  are  small. 

So  what  action  should  I be 
taking  now? 

That  depends  on  many 
things,  such  as  whether  you 
are  based  or  have 
subsidiaries  inside  the 
eurozone,  the  extent  to 
which  you  trade  with  the  * 
eurozone,  and  what  kind  of  I 
business  you  are  in.  The 
level  of  preparedness  is 
highest  tor  banks,  while 
small  retailers  need  to  worry 
less  because  euro 
banknotes  and  coins  will  not 
arrive  until  2002.  In  most 
cases,  you  should  have  the 
capability  to  handle 

payments  by  your  customers 
in  either  euros  or  national 
denominations.  You  will 
probably  have  to  change 
your  IT  systems,  if  you  are 
based  outside  the  eurozone, 
and  you  operate  solely  in 
your  domestic  currencies 
and/or  US  dollars,  it  may  not 
matter. 

lam  based  to  the 
eurozone.  How  do  1 
change  my  systems? 

There  are  two  broad 
strategies:  a Big  Bang, 
under  which  companies 
change  their  entire  booking 
system  to  euros  on  a given 
date,  in  some  cases  January 
1, 1999.  This  is  considered 
the  cheapest  approach,  but 
carries  toe  risk  of  a systems 
failure.  Many  large 
continental  companies  have 
decided  to  opt  tor  a Big 
Bang,  but  they  have  been 
preparing  tor  many  years. 

The  alternative  is  a dual 
approach,  in  which  the 
company  maintains  national 
currencies  for  all  activities 
but  sets  up  a “shadow"  euro 
booking  system.  This  is 
more  expensive  than  the  Big 
Bang,  but  less  prone  to  a 
breakdown.  Then  mere  are 
mixtures  of  the  two 
approaches  that  may  offer  a 
better  combination  of  cost 
and  risk,  with  some  systems 
switched  over  fmmecfiately 
and  others  on  dual-track. 

Wolfgang  MQnchau  I 


V » 
■t 


if  ' ^ • • - 



-Mr 


When  the  Euro  comes  to  fruition, 
make  sure  you  enjoy  the  rewards. 


The  change  to  a single  European  currency  will  yield  countless  new  growth  opportunities. 
And  Bankers  Trust  is  ideally  positioned  ro  help  you  take  advantage  of  them.  By  combining  in-depth 
knowledge  of  key  industries  and  local  markets,  insightful  research,  financial  expertise  and  global 
resources,  were  able  to  provide  a full  array  of  Euro-related  solutions.  Which  means  you'll  also 
have  access  ro  BT  Alex.  Browns  proven  strengths  in  finance,  M&A  and  advisory  services,  equity 
trading  and  sales,  and  Bankers  Trusts  tradition  of  excellence  in  cross-border  trading,  emerging 
markets,  foreign  exchange  and  structured  products — all  on  a global  scale.  Moreover,  our 
ingenuity  and  strength  in  Euro  clearing  and  institutional  services  will  make  the  transition 
even  smoother.  When  you’re  in  the  right  place,  it  s easier  to  pluck  the  rewards. 


k BankersTrust 

Architects  of  Value 


»-19S8  Bankers  Tns  Cswssr.  gtiaaiiaeciesncariies.  Issued  by  Bankets  Trost  tntemaSansi  PLC,  regulated  lor  UK  investment  business  fay  SFA. 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


MANAGEMENT  CONSOLIDATING  SMALL  BUSINESSES 


__  _ TECHNOLOGY  WORTH  WATCHING 

Sweet  success  beckons  for  Israeli  research 
into  one-shot  treatment  for  diabetes 


When  Yoram  Karmon,  an 
Israel!  molecular  biologist, 
set  up  Peptor  in  1993  he 
believed  the  survival  of  his 
company  depended  on 
finding  a niche.  He  decided 
to  specialise,  establishing 
a technology  platform  for 
the  treatment  of 
autoimmune  diseases. 

Besides  looking  at  new 
treatment  for  pancreatic 
cancer  and  HIV,  the  virus 
that  causes  Aids,  Mr 
Karmon  was  determined  to 
find  a cure  for  diabetes,  a 
disease  affecting  around 
1m  patients  in  the  US 
alone,  with  60,000  new 
cases  being  recorded  each 
year. 

Type  1 Diabetes,  or 
insulin  dependant  diabetes 
meJIitus  (IDDM),  is  caused 
by  the  autoimmune 
dysfunction  of  the 
insulin-producing  b-cefis, 
making  the  body  unable  to 
absorb  sugar  and  starch.  If 
diabetes  occurs  before  the 
age  of  30,  the  medical 


Laser  probe 
separates 
polymers  to 
aid  recycling 

One  of  the  obstacles  to 
recycling  plastics  is  the 
difficulty  of  separating  out 
different  polymers  before 
melting  them  down.  If  they 

become  contaminated  with 
another  plastic  they  may 
have  to  be  incinerated  or 
thrown  away. 

Researchers  at  Purdue 
University  in  the  US  have 
developed  a handheld  probe 
that  can  determine  the 
chemical  composition  of 
plastics.  The  device,  which 
shines  a laser  beam  at  the 
plastic  and  collects  the 
scattered  light,  can  identify 
more  than  100  pieces  of 
plastic  per  second,  or  500 
tons  a day. 

Ford's  car  component 
operation  helped  finance  the 
development  of  the  device. 
The  US  Environmental 
Protection  Agency  also 
provided  funding  for  the 
research. 

The  device  was  developed 
by  a group  of  Purdue 


consensus  is  that  life 
expectancy  can  be 
reduced  by  IS  years. 

__  Diabetic  patients  require 
atdaily  and  highly 
regulated  dose  of  Insulin. 
But  Mr  Karmon  is  working 
on  a treatment  which 
would  require  a patient 
being  insulated  only  once 
and  then  subject  to 
periodic  boosts,  similar  to 
a kind  of  vaccine 
treatment 

Peptor,  with  a particular 
emphasis  on  juvenile 
diabetes  patients,  treats 
diabetes  with  a drug 
designed  to  stop  the 
Immune  system  from 
attacking  the  pancreas. 

But  instead  of  using  a drug 
to  suppress  the  function  of 
the  immune  system  in 
general  - weakening  in  the 
process  the  immune 
system's  ability  to  protect 
the  body  - Peptor’s  drug 
acts  specifically  on  those 
cells  of  the  immune 
system  that  are  destroying 


University  researchers  and 
manufactured  by 
SpectraCode,  a company 
set  up  on  Purdue's  Industn'al 
Research  Park.  In  the  UK, 
similar  devices  have  been 
developed  jointly  by  Ford 
and  Southampton  University. 
Purdue  University:  US, 
7654942096;  http:// 
news.uns.purdue.edu/ 

Helium  could 
help  lung 
diagnosis 

Until  recently,  magnetic 
resonance  imaging  - an 
important  diagnostic 
technique  in  medicine  - 
could  not  be  applied  to  the 
lungs.  This  is  because  they 
do  not  contain  enough  water 
to  provide  the  protons 
(hydrogen  nuclei)  on  which 
the  technique  depends. 

But  a team  of  European 
scientists  have  found  a way 
round  this  problem,  using  a 
highly  polarised  form  of 
helium  that  is  breathed  in  by 
the  patient  The  lungs  can 
then  be  visualised  in  three 
dimensions  using 
sophisticated  software. 


the  insulin  producing 
beta-cells  of  the  pancreas. 

In  a joint  development 
project  with  Israel’s 
Weizmann  Institute  of 
Science  and  the 
Ares-Serone  Group,  a 
leading  pharmaceutical 
company,  Peptor  has 
already  conducted  Phase  I 
human  clinical  trials  for  a 
new  diabetes  drug.  Phase 
II,  involving  250  patients,  is 
in  progress. 

So  far,  says  Mr  Karmon, 
the  results  from  Phase  I 
were  encouraging  with  no 
allergic  reaction,  no 
inflammatory  immune 
response  and  a high 
incidence  of  responses  by 
cells.  Phase  III  is  the  most 
crucial  because  the 
number  of  patients  is 
greater  and  it  is  a double 
blind  trial.  This  phase  is 
about  to  bef  in  and  should 
be  completed  by  the  end 
of  this  decade. 

Investors,  so  far,  have 
1 rallied  behind  Peptor.  Last 

IN  BRIEF 


allowing  detailed  studies  of 
the  working  of  the  lungs  and 
diseases  such  as  cancer  or 
tuberculosis.  The  technique 
has  been  developed  to  a 
point  where  it  could  soon 
become  standard  practice  in 
hospitals,  according  to  the 
researchers. 

The  technique,  which  built 
on  an  experiment  originally 
conducted  at  the  universities 
of  Princeton  and  Stony 
Brook,  was  developed  at  the 
University  of  Mainz,  Institute 
Laue-Langevin  at  Grenoble 
and  the  Ecole  Normal© 
Sup^rfeur  in  Paris. 

Institut  Laue-Langevin: 
France,  tel  476207179; 
buttnerQill.fr 

Mother’s  first 
milk  to  treat 
Alzheimer’s 

A UK  biotechnology 
company.  ReGen 
Therapeutics,  is  developing 
a potential  treatment  for 
Alzheimer’s  disease  based 
on  colostrum  - the  first  milk 
produced  by  mammals  after 
giving  birth  which  offers 
certain  immune  properties, 


the 
touch 


and  job  organisation  func- 
tion much  better  on  a small 
scale,  why  bother  to  consoli- 
date at  all? 

A key  principle  of  roll-ups 
is  that  there  are  important 
economies  of  scale  to  be 
gained.  Consolidators  seek  to 
boost  profits  by  centralising 
purchasing,  payroll  and 
other  support  services. 

“If  Staples  (a  large  US 
office  supply  retail  chain) 
purchases  $200m  in  ‘Post-its' 
from  3M  (a  large  manufac- 
turer of  paper  goods),  they 
are  going  to  get  a huge  dis- 
count," says  Mr  Ledecky. 
“Small  businesses  on  their 
own  are  at  a big  disadvan- 
tage because  they're  paying 
much  more  for  their  materi- 
als." 

Mr  Ledecky  says  that  at 
one  of  his  roll-up  groups, 
management  played  one  tele- 
phone service  against 
another  to  receive  a substan- 
tial “prebate"  - a cash  pay- 
ment for  expected  demand. 
“That’s  the  kind  of  thing  big 
companies  do  well."  he  says. 

While  the  roll-up  manage- 
ment model  is  becoming 
increasingly  popular,  many 
are  sceptical  of  organisations 
that  take  the  bottom-up 
approach  to  the  extreme. 
“Not  all  consolidators  are 
created  equal,"  says  David 
Scharf,  who  analyses  the 
sector  for  Montgomery  Secu- 
rities. 

For  a consolidator  to  do 
well,  there  must  be  a strong 
rationale  for  operating 
nationally,  rather  than 
locally,  says  Bruce  Rauner,  a 
venture  capitalist  specialis- 
ing in  roll-ups  at  Golder. 
Thomas.  Cressey,  Rauner. 

“Companies  that  instill  a 
central  corporate  ‘culture’ 
and  those  that  adopt  a ‘best 
practices'  approach  to 
change  the  way  things  are 
done  at  their  operations  are 
a step  ahead,"  he  says. 

It  would  be  a mistake  to 
assume  that  just  because  a 
business  is  small,  its  rela- 
tionship with  customers  is 
good.  “While  there  are  innu- 
merable dry  cleaners 
through  the  country,  there 
are  relatively  few  synergies 

available  from  owning  a 
national  chain  of  them," 
says  Mr  Rauner. 

“These  companies  don't 
typically  establish  strong 
local  franchises  that  can  be 
counted  on  to  retain  loyal 
customers." 


flU 


* SB 
% 


one  chocolate  in  half  a second  - 
a speed  judged  in  the  industry  to 
be  fairly  close  to  the  limits  of 
what  is  technologically  possible. 
This  allows  a large  range  of  of 
sweet  to  be  placed,  in  whatever 
order  the  chocolate  producer 
chooses,  in  an  equally  big  range 
of  trays,  says  Calvin  Grieder. 
general  manager  at  SIG's  packag- 
ing systems  division.  One  tray 
can  be  filled  in  as  little  as  five 
seconds,  depending  on  its  size. 

Variations  in  customers'  orders 
- for  instance  from  supermarkets 
which  suddenly  decide  their 
shoppers  are  keener  on  raspberry 
truffles  than  lemon  creams  - can 
be  catered  for  by  the  machinery 
just  as  easily  as  ordering  a set  of 
human  workers  to  fill  the  selec- 
tion boxes  in  a different  way. 

“We  are  bringing  just-in-time 
automation  to  the  chocolate  fac- 
tory," says  Mr  Grieder,  whose 
company  last  year  sold  SFrtllm- 
worth  of  packaging  machines, 
mostly  for  chocolate  or  biscuit 
plants.  Big  customers  include 
Cadbury-Schweppes  and  Lindt  & 
SprQngli,  two  of  the  world's  large 
chocolate  companies. 

In  another  development 
designed  to  improve  the  flexibil- 
ity and  ease  of  use  of  the  compa- 
ny’s systems,  the  internet  is  used 
to  channel  information  between 
SIG's  latest  packaging  machines 
and  computers  around  the  world. 

In  this  way,  for  instance,  SIG 
engineers  in  Switzerland  can 
download  programs  from  one  of 
the  company's  packaging 
systems  in  the  US  to  their  own 
computers  to  check  for  possible 
faults.  Alternatively,  technicians 
working  on  a production 
machine  can  call  up  relevant 
technical  data  - for  instance 
about  the  chemistry  behind  the 
creation  of  a specific  chocolate 
recipe  - from  development  labo- 
ratories on  the  other  side  of  the 
world. 

David  Syz,  SIG’s  chief  execu- 
tive, reckons  the  use  of  modern 
software  and  electronics  in  this 
way  should  be  a strong  selling 
point  as  the  company  attempts  to 
push  its  newest  range  of  choco- 
late machines  further  across  the 
technological  frontiers. 


Edible  sign  of  progress:  companies  can  ensure  that  a space  allocated  to  an  orange  whirl  wW  never  contain  8 hazelnut  duster 


DEMAND  FOR  VARIETY 


Cartons  reflect  pace  of  change 


Anyone  who  has  bothered 
to  count  the  types  of  card- 
board box  in  the  local 
supermarket  would  quickly  get 
to  hundreds,  if  not  thousands. 
writes  Peter  Marsh.-  The  large 
variation  is  particularly  notice- 
able at  the  displays  selling  selec- 
tion boxes  of  chocolates. 

This  proliferation  In  packaging 
types  spells  headaches  for  Bobst, 
a Swiss  company  which  is  one  of 
the  world’s  biggest  makers  of 
machines  to  make  cardboard 
boxes  and  cartons. 

Because  of  the  desire  of  food 
and  other  consumer  products 
companies  for  greater  range. 
Bobst  has  been  forced  to  engineer 
its  machines  so  that  they  are 


much  more  capable  than  10  years 
ago  of  being  switched  between 
different  packaging  types.  The 
machines  cost  between 
SFrSOO.000  ($329,000)  and  SFrlOm, 
depending  on  sophistication. 

In  the  1980s,  a Bobst  machine 
was  likely  to  have  spent  virtually 
all  its  working  life  being 
switched  on  for  eight  hours  at  a 
time  to  make  “Oat-pack"  shapes 
for  up  to  about  100.000  boxes,  all 
of  the  same  size  and  design.  The 
boxes  could  be  used  for  packing 
not  only  chocolate  but  anything 
else  from  cigarettes  to  shoes. 

Today,  however,  the  equivalent 
system  will  typically  be  turned 
off  three  or  four  times  during  a 
factory  shift  to  switch  to  differ- 


ent packaging  types,  to  suit  a 
variety  of  markets  or  products. 

According  to  Andreas  Koop- 
man,  Bobst’s  chief  executive, 
whose  company  last  year  sold 
SFrl.36bn  of  packaging  equip- 
ment this  has  led  to  a greater 
need  for  machines  whose  scoring 
and  cutting  mechanisms  can  be 
altered  easily,  within  as  little  as 
20  minutes,  to  make  production 
change-overs  straightforward. 

There  is  also  a greater  empha- 
sis on  electronics  and  software 
which  helps  make  the  machines 
more  capable  of  being  re-pro- 
grammed  to  suit  different 
requirements.  Of  Bobst's  500 
development  engineers  (of  whom 
about  340  are  in  Switzerland  and 


the  rest  elsewhere  in  Europe) 
about  a third  are  software  or 
electronics  specialists. 

Apart  from  making  sure  that 
its  machines  can  be  switched 
between  different  requirements 
relatively  simply,  Bobst  has  also 
been  forced  to  bring  out  a wider 
range  of  machines  to  fit  in  with 
customer  requirements.  Today 
the  company  makes  more  than 
100  basic  model  types,  roughly  20 
per  cent  more  than  in  the  early 
1990s.  Each  model  type  also  is 
normally  adapted  to  meet  a par- 
ticular need.  “Only  a few  of  the 
machines  coming  out  of  one  of 
our  factories  during  the  course  of 
a year  are  likely  to  be  the  same." 
says  Mr  Koopman. 


; i,  SLZ,"*  - 


.W-V.v 

■ 


* 


Hinton  Getty 


■Sffr 

■si' 


-» ■ 
.-*v 


Roll  up  for 
personal 


Victoria  Griffith  on  how  US  small 
companies  can  join  forces  without 
reducing  customer  service 


HI  Have  you  ever  felt 
fLijthat  the  family-run 
■ 41-1  corner  shop  might 
have  a lot  to  teach  big  com- 
panies about  customer  man- 
agement? 

Store  owners'  ability  to 
remember  the  names  of  reg- 
ular customers,  stock  up  on 
their  favourite  items  or  for- 
give a small  debt  can  inspire 
the  kind  of  loyalty  that  often 
seems  beyond  the  reach  of 
larger  groups.  Many  people, 
when  thrown  into  an  anony- 
mous, bureaucratic  relation- 
ship with  mega-corporations, 
long  for  that  old-fashioned 
personal  touch. 

The  advantages  of  small, 
family-style  enterprises  have 
not  escaped  the  notice  of  the 
US  stock  market.  Indeed, 
investors  are  Increasingly 
recognising  their  value 
through  management  struc- 
tures called  “roll-ups". 

Roll-ups  bring  dozens, 
sometimes  hundreds,  of  local 
businesses  together  into  a 
consolidated  company  that 
aims  to  gain  economies  of 
scale  without  forfeiting  cus- 
tomer relationships. 

The  management  struc- 
ture of  these  organisations 
may  hold  important  lessons 
for  larger  companies.  Roll- 
ups often  have  very  loose 
control  at  the  top.  allowing 
for  a great  deal  of  autonomy 
on  the  ground  - allowing, 
for  instance,  each  business 
to  keep  its  brand  name. 

Such  management  struc- 
tures are  becoming  increas- 
ingly popular,  particularly  in 
the  US.  “There  isn’t  an 
industry  in  America  that 
isn't  under  attack  by  consoli- 
dators,” says  Bill 
Sahlman,  a professor  at  Har- 
vard Business  School. 
“There  are  hundreds  of 
people  out  there  who  are  try- 
ing to  figure  out  how  to  com- 
bine small  companies  and 
get  something  interesting  " 

Some  better-known  roll- 
ups are:  Service  Corporation 
International,  the  under- 
taker that  this  month 
announced  the  purchase  of 
another  roll-up.  Equity  Cor- 
poration International;  US 
Office  Products  and  US  Flo- 
ral Products,  which  were 
created  by  Jonathan 
Ledecky,  who  is  considered 


something  of  a roll-up  guru: 
and  Dispatch  Management 
Services,  a courier  service 
that  went  public  earlier  this 
year.  Travel  agencies,  office 
services  and  funeral  par- 
lours seem  particularly 
suited  to  this  structure. 

The  US  stock  market 
seems  to  like  these  organisa- 
tions. Equity  prices  in  con- 
solidators were  up  18  per 
cent  for  the  first  six  months 
of  the  year,  says  San 
Francisco-based  Montgom- 
ery Securities.  However, 
prices  have  been  hit  by  a 
general  market  decline,  par- 
ticularly on  the  Nasdaq 
exchange  where  many  are 
traded. 

A key  premise  of  roll-ups 
is  that  customer  service  and 
product  quality  tends  to 
deteriorate  with  size.  The 
bigger  the  organisation,  the 
more  likely  customers  are  to 
fall  into  an  uncaring 
bureaucracy. 

“You  call  the  toll-free 
number  to  make  a complaint 
and  get  switched  around  to 
another  department,"  says 
Linda  Jenkinson,  chief  exec- 
utive of  Dispatch  Manage- 
ment Services,  which  couri- 
ers packages  within  cities 
and  internationally.  “You 
talk  to  Butch,  get  cut  off. 
and  phone  in  again.  That’s 
the  way  big  companies  han- 
dle customer  service." 

At  Dispatch  Management, 
original  brands  and  manag- 
ers are  maintained  The  cli- 
ent would  be  directed  to  a 
central  location  only  if  the 
local  company  is  too  busy  to 
cope.  “People  are  always 
talking  to  the  same  people, 
so  you  create  feelings  of  inti- 
macy and  form  relation- 
ships," says  Ms  Jenkinson. 

Dispatch  Management  also 
tries  to  give  individual  couri- 
ers as  much  power  as  possi- 
ble. There  is  no  central  office 
telling  people  where  to  go. 
Instead,  management 
announces  orders  over  the 
radio,  and  the  first  caller 
picks  up  the  business.  “It 
works  like  taxis.  The  couri- 
ers themselves  know  how 
close  they  are  to  locations 
and  ran  organise  themselves 
much  better  than  a top-down 
manager  could." 

If  customer  relationships 


* * 


'■*  •*«“ 


Karmon  raised  S15tn  from 
domestic  and  European 
investors,  in  addition  to 
raising  more  than  $30m  in 
earlier  private  placements. 
The  total,  says  Mr  Karmon, 
wifi  keep  Peptor  going 


Science  Picture  Library 

until  the  end  of  2000  - 
when  Phase  III  trials  will 
be  complete. 

Peptor,  Israel:  tel  9726  940 
1232,  fax  9728  940  7737; 
e-mail  peptoiQnetvision.net.il 

Judy  Dempsey 


Peptor  is  aimed  at  Juvenile  diabetics 
month,  with  little  effort,  Mr 


writes  William  Macdonald. 

The  company  has 
acquired  the  rights  to 
colostrinin,  produced  from 
colostrum,  from  the  Polish 
Academy  of  Sciences  where 
it  has  been  developed  for  20 
years.  Colostrinin  appears  to 
work  by  a new  type  of 
immunoregulatory 
mechanism  in  treating 
Alzheimer’s  disease.  Clinical 
trials  on  65  patients  over 
three-and-a-half  years  saw 
their  condition  stabilise  and 
the  social  functions  and 
short-term  memory  of  some 
improved  significantly.  None 
of  the  trial  patients  suffered 
a serious  adverse  reaction  to 
the  therapy.  The  drug  will  be 
produced  in  commercial 
quantities  from  awe’s 
milk. 

Marshall  Robinson  Roe:  UK. 
tel  (0)171  2532268;  fax 
(0)171  2511939. 

Light-sensitive 
material  found 
by  chance 

Photochromic  materials  - 
which  change  colour  on 
exposure  to  light  - are 


usually  too  expensive  to  be 
used  on  a large  scale. 

But  an  inexpensive 

alternative  has  been 

discovered  by  chance  by 
researchers  at  the  US 
Department  of  Energy's 
Lawrence  Berkeley  National 
Laboratory  and  the 
University  of  California, 
Berkeley. 

The  material,  developed  as 
part  of  an  investigation  into 
rechargeable  batteries,  is 
made  from  layers  of  nickel 
hydroxide  and  titanium 
dioxide  on  glass,  plastic  or 
ceramics.  It  was  found  to 
become  opaque  with 
increasing  levels  of  sunlight, 
making  it  suitable  for 
energy-efficient  windows. 

Other  possible 
applications  of  the  material, 
which  also  responds  to  the 
application  of  a small 
voltage.  Include  computer 
display  panels,  light  meters 
and  low-cost  memory 
devices.  The  researchers 
have  applied  for  a patent 
Lawrence  Berkeley  National 
Laboratory:  US,  tel 
5104864210:  a_chenQibl.gov 

Vanessa  Houlder 


Boxing  clever  in  a 
chocolate  factory 


A Swiss  company  may  have  the  answer  to  the 
problems  of  sweet  packing,  says  Peter  Marsh 


It  sounds  a laughably 
simple  task.  For  25  years 
the  world's  confectionery 
industry  has  tried  to  devise 
machines  that  can  improve  on 
humans’  ability  to  fill  up  boxes  or 
chocolates.  Until  recently,  ]t  has 
tailed  miserably. 

But  in  the  past  year  a break- 
through by  SIG,  a leading  Swiss 
packaging  equipment  manufac- 
turer, has  given  hope  to  those 
attempting  to  oust  people  from 
the  production  lines  of  the 
world's  chocolate  industry. 

A series  of  systems  devised  by 
SIG  is  being  put  through  their 
paces  in  about  five  unnamed 
chocolate  factories  around  the 
world.  It  contains  an  esoteric 
mixture  of  complex  control  soft- 
ware. some  of  the  world's  fastest 
robots  and  sophisticated  image- 
analysis  equipment 

The  plants  have  to  remain  uni- 
dentified because  the  companies 
running  them  do  not  want  com- 
petitors to  know  they  have  the 
new  machinery. 

The  new  machines,  each  cost- 
ing up  to  SFr4m  (£1.6m),  promise 
to  automate  the  job  of  filling 
chocolate  boxes  with  different 
shapes  and  sizes  of  sweets,  with- 
out losing  the  flexibility  that 
humans  bring  to  this  process. 

The  key  to  a production  line  of 
this  type  is  versatility.  Typically, 
a confectionery  company  may 
need  to  put  10-15  different  types 
of  sweet  in  a range  of  sequences 
into  a large  number  of  different 
sized  boxes  being  passed  along  a 
conveyor. 

In  the  past  the  only  way  to 
cope  has  been  to  employ  an  army 
of  people  to  put  the  chocolates  in 
the  trays  inside  the  boxes  by 
hand. 

But  automation  has  been  a 
holy  grail  for  the  Industry,  not 
only  to  reduce  employment  costs 
but  to  bring  greater  consistency 
in  filling  standards.  In  this  way, 
chocolate  companies  hope  to 
ensure  consumers  are  never 
faced  with  an  orange  whirl  in  the 
space  allocated  for  a hazelnut 
cluster. 


. During  the  filling  process 
humans  are  also  liable  to  damage 
the  frail  outer  coatings  of  some 
chocolates  with  soft  centres,  a 
job  robots  may  accomplish  bet- 
ter. 

A further  pressure  to  introduce 
automation  has  been  the  bigger 
range  of  selection  boxes  offered 
by  many  confectionery  compa- 
nies, reflecting  the  proliferation 
of  consumer  outlets  and  differing 
tastes.  The  larger  range  of  boxes 
has  put  still  greater  emphasis  on 
the  need  for  production  flexibil- 
ity. 

In  SIG's  machines,  which  have 
been  developed  in  the  company's 
main  packaging  system  plant 
near  Schaffhausen,  a single 
conveyor  is  used  to  channel  a 
variety  of  plastic  trays  for  differ- 
ent types  of  selection  boxes. 

At  right  angles  to  this  main 
conveyor  is  a series  of  subsidiary 


Automation 
has  been  a 
holy  grail  for 
the  industry 

conveyors,  carrying  chocolates  of 
various  shapes  and  sizes,  to  inter- 
cept the  trays. 

Up  to  20  cameras  set  above  the 
conveyors  track  the  chocolates' 
movements.  Using  high-speed 
Image  analysis  software,  they 
work  out  both  the  type  of  sweet 
(the  cameras  match  the  shapes 
and  markings  of  the  chocolates 
with  "libraries"  of  stored  pro- 
grams) and  also  their  positions. 

This  information  is  sent  elec- 
tronically from  the  cameras  to 
between  eight  and  12  small 
robots.  Using  either  mechanical 
grippers  or  suction  devices,  the 
robots  pick  up  individual  choco- 
lates from  their  moving  conveyor 
before  depositing  them  in  trays 
according  to  instructions  fed  into 
the  system's  control  unit. 

The  robots  can  pick  and  place 


TECHNOLOGY  PACKAGING  EQUIPMENT 


MANAGEMENT  & TECHNOLOGY 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


EQUITIES 


EURO  PRICES 


Europe  passes  on  Wall  St  rally 


CURRENCIES  & MONEY 


FT  SYNTHETIC  EURO  RATES 


HJROPEANOVERyiEW 

By  Phffip  CoQgan, 

Markets  Editor 

European  bourses  did  not 
take  the  opportunity  of  Wall 
Street's  big  gain  on  Tuesday 
to  carry  on  with  their  recent 
rally.  Mixed  news  from 
Japan  and  some  renewed 
worries  about  the  exposure 
of  the  banking  sector  to 
emerging  markets  sent  most 
markets  lower. 

, Since  the  global  correction 
began  in  mid-July,  markets 
have  been  extremely  volatile 
and  it  was  perhaps  no  sur- 
prise that  European  equities 
could  not  achieve  a fourth 

FR2i  Eurotop  300 &*ubioc  - - 

kjdsc  • t " . 


day  of  gains,  even  after 
Tuesday's  380-point  gain  in 
the  Dow  Jones  Industrial 
Average. 

Worries  about  Japanese 
banks'  derivatives  losses  and 
some  figures  from  Credit 
Suisse  on  its  emerging- 
market  exposure  outweighed 
tbe  beneficial  effects  for 
Europe  of  the  Japanese  rate 
cut  and  the  consequent 
rebound  in  the  dollar. 

The  FTSE  Eurotop  100 
index  fell  43.56  of  1.7  per 
cent  to  2.541.68,  while  the 
broader  Eurotop  300  dropped 
17.41  to  1.100.92.  The  FTSE 
Ebloc  100  index,  which  com- 
prises stocks  in  countries 
planning  to  be  part  of  the 


single  currency,  reversed 
some  of  Tuesday's  outper- 
formance.  It  fell  18.6,  or  2 per 
cent,  to  919.06. 

Financial  stocks,  which 
had  been  showing  signs  erf  a 
revival  in  recent  sessions, 
slipped  back  again  on  the  CS 
news  and  the  Japanese 
derivatives  stories.  CS 
shares  themselves  fell  Ecu 
20.30  to  Ecu  131.47,  While 
Deutsche  Bank  dropped  Ecu 
3-20  to  Ecu  55.16.  The  retail 
hanking  sector  dipped  3-5  per 
cent 

The  distribution  sector  fell 
&2  per  cent  with  an  Adidas 
investor  roadshow  report- 
edly going  badly.  Adidas 
shares  lost  Ecu  7.90  to  Ecu 


10L44.  The  best  performing 
sector  of  the  day  was  brew- 
eries, pubs  and  restaurants 
after  Merrill  Lynch  issued 
rpffnrnmeTIffatiflHS  on  so  me  of 
the  UK  stiy-ka  Bass  was  up 
Ecu  0.40  to  Ecu  13.16  and 
Whitbread  Ecu  0.70  to  Ecu 
1L93. 

In  automobiles,  Peugeot 
produced  profits  at  the  top 
end  of  expectations  and  saw 
its  shares  gain  Ecu  4.80  to 
Ecu  151.83. 

But  the  sector  fell  12  per 
cent,  dragged  down  by 
BMW,  which  dropped  Ecu 
513  to  Ecu  64636. 


Mora  Earn  coverage  on  the 
Business  and  ti*  Euro  page 


pr  •#**■**' 


acc  o 


f chare 


■ THREE  Mam  EURO  FUTURES  £UFFQ  Eculra  ports  gf  1DK 


Open 

Sett  price 

aunpe 

Low 

B t vtd 

Open  tot 

03 

95550 

46010 

0 

0 

Dec 

96300 

96330 

40540 

96330 

96300 

355 

8806 

liar 

96515 

96515 

46065 

96515 

96515 

4 

9087 

Jui 

96.490 

+0.030 

0 

2071 

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■ THREE  MONTH  8*0  OPTIONS  *FFQ  Eoiln  ports  of  100% 


St*® 

PlICB 

Sep 

Od 

CALLS  - 
Noe 

Dec 

Sep 

90000 

6005 

nrai 

0335 

0355 

6155 

BG12S 

0 

6275 

HUS 


Oct 

0 


0005 


Osc 

axes 


Estwt  Hat.  era  a fun  a RwtaD  d*r*  one  w_  cafe  e he*  o 
■ FTSE  EUR0T0P 100 IDEX  FUTURES  (LJFFE)  Ecn20  per  (IS  Mb  pott 


Open 

Sett  price 

Cbange 

Lew 

E steal 

Open  to. 

Sep 

25310 

-67.0 

0 

2792 

Dec 

26000 

25565 

-673 

28000 

29060 

2 

2288 

Har 

25660 

-57.0 

0 

117 

■ BIRO  sms  FTSE  EUROTOP  W0  BBS  OPT**  (ADO  BaflO  pet  todex  port 

2475  2380  2GSS  2SJ0  2S73  2000  2825  2050 

CPCPCPCPCPCPCPCP 
s*o  isansoanssucnGOon 
Od  185  83  KB  01  132  10O  1SB  1QB  t22  120  108  13Z  9S  to  S3  157 
Ess  id  ttt-  fm  toy's  cm  U ME  7.C7  Protore  town  an  bead  on  irtrtM  pm. 


OTHER  INDICES 


sw 

9 


S* 

8 


1998 

am  imr 


Staooo pAfitM 

am  tor 


for  the 


DJ  Stax  50  306169  311087  306099  367062  257451  J67U82  2075X2 

OJ  Eoro  5t»  5C  3QS1 .49  3105X1  3038.®  360*  *4668t  JBB/48  206552 

MSd  Bn*  M 111062  1 00591  131555  96050  13«5S  51078 

Sane-  Bae/part  tf  FT  hrtmokn.  -Sitted  id  mb*  not  toy.  » mrtUa 


1 FTSE  Actuaries  Share  Indices 

European  scries! 

KmmtmH it  0 

todonel  S Ragtowl 
Martrtx 

Ecu 

total 

oaf 

% 

drape 

petti 

yieu 
gross  % 

M sq 
ltd 

TOt*  retD 
(Ecu! 

FTSE  BjoBjp  300 

110002 

-136 

-17/41 

259 

2224 

113610 

FTSE  Eurotap  100 

254138 

-13B 

-4156 

254 

3289 

90856 

FTSE  Ettae  100 

91988 

-138 

-1830 

2.19 

1117 

931.14 

n«6  Bwrtp  300  Etootara 

Eucrtc 

115687 

-136 

-22.10 

224 

19.78 

117891 

UK 

101135 

-028 

-238 

320 

2854 

1055/41 

Eocpe  Ejf-Eurattoc 

105630 

-122 

-1183 

296 

MM 

106999 

Brape  Ex-UK 

1152.18 

-2.16 

-25.46 

229 

1853 

117219 

FTSE  firatap  totetoy  Sectors 

resobuces 

83880 

-136 

-1674 

143 

2151 

88256 

Exfixtfvc  Woffiitt 

58384 

-835 

-034 

4.18 

□ nn 

69354 

M.  Urtrtd 

81155 

-2M 

-1631 

138 

1103 

82645 

OL  Eqrtafeo  6 Fred 

57680 

-1/44 

-644 

557 

600 

.57950 

GBEUU.  MXSTtoS 

103930 

-138 

-11/44 

2.71 

1953 

105953 

flwtnrtWl 

947.70 

+132 

+1538 

256 

1156 

95673 

Brttog  Uato  8 Herds 

84158 

-657 

-432 

3.13 

60S 

84998 

Cheoiato 

83334 

-144 

-1221 

290 

1697 

847.13 

UraaDOQ  DQOV9S 

91670 

-123 

-11/43 

239 

17/48 

93243 

Bacnxdc  6 Elect  Eqtft 

91148 

-1.17 

-1078 

155 

459 

91006 

Brttetrt*} 

Msn 

-068 

-539 

351 

65? 

80151 

Freer.  Pcfcfl  6 FrUtog 

78135 

-1.16 

-9.14 

350 

121 

78292 

COSUBI  GOODS 

111027 

-OB4 

-7.19 

155 

1554 

113795 

AutosaWto* 

01532 

-131 

-12.16 

255 

1025 

92491 

AtcotBir  fiovers^ss 

83630 

-659 

-438 

260 

552 

84151 

Food  Producers 

01633 

-035 

-7.89 

1J8 

957 

924.87 

Hoetebrt  GoodB  A Taft 

102035 

-033 

-648 

192 

791 

1QZ722 

Itertun 

BB955 

-1-82 

-1698 

158 

952 

87659 

Df,  i 

ra;0? 

-670 

-637 

152 

427 

99023 

Tobacco 

113433 

+220 

+2429 

192 

152 

113676 

SSMCE5 

114127 

-632 

-044 

252 

2097 

117297 

DisSlhuta 

767.18 

-116 

-2536 

299 

1157 

77528 

Letoure  & ftotris 

76721 

4631 

+229 

329 

1227 

77724 

Uedto 

95733 

-618 

-122 

2 44 

953 

96696 

Retorts.  Food 

101731 

4033 

+327 

295 

1157 

102006 

Retorts  Breenl 

10D1.43 

+034 

4637 

145 

1653 

1017.75 

TtieeoMFurtoacos 

103883 

-220 

-2322 

191 

1102 

105152 

BreMStos,  Pubs  6 Rests 

82139 

+140 

+2723 

352 

1420 

834.18 

Sftpoa  Sendees 

83227 

+675 

+697 

151 

654 

03679 

Transport 

902X5 

-670 

-634 

271 

11.76 

91255 

Worniellon  Teftadcgy 

1164.14 

-239 

-2438 

055 

223 

116679 

uiunB 

138689 

-611 

-151 

123 

5352 

144493 

Btcbfcty 

104678 

-027 

-255 

356 

2623 

107679 

Gas  OstitaJtkn 

103332 

-646 

-433 

1.78 

8451 

112681 

Water 

102933 

+1/40 

+1422 

600 

3672 

1069.16 

FMANGUIS 

114336 

-101 

-3553 

296 

2640 

117654 

BwUsJWW 

79431 

-146 

-2651 

198 

1252 

80457 

Kara 

B85.60 

-178 

-E29 

157 

11.45 

rai94 

Life  tosuance 

106643 

-1.73 

-1677 

159 

210 

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+086 

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+183 

+1.40 

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01/09 

5800 

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+017 

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11708 

6250 

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+019 

+026 

• +016 

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AA 

07/07 

5825 

OEM 

+027 

+034 

+017 

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AA- 

01/08 

5800 

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+020 

+023 

+020 

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AA- 

02/02 

6.750 

m. 

+027 

+039 

+029 

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02m 

7250 

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+0.49 

+048 

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6375 

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+041 

+041 

+034 

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03AM 

6250 

FRF 

+035 

+034 

+032 

Ba*nS  CNna 

B8B 

07/99 

7.125 

OBI 

♦318 

+481 

+134 

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06/01. 

9800 

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+1.16 

+1.10 

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11/02 

5825 

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+082 

+988 

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04/08 

8.125 

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+035 

+6.49 

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Eda's  Board  of  Directors,  chaired  by  Daniel  Dewavrin,  met  on  Monday  September  7,  1998  to  inspect  the 
accounts  for  the  first  half  of  1998.  T 


C 


Results 


Sales  13,278.0  11,835.8  23^24 

Operating  income  857.0  761-7  1,564 

Net  Tnajme.Stoup  share  (*J  202.4  625.9  415 


Net  income  per  share  (FF) 
Cash  Row  per  share  (FF) 


44.2 

192-3 


49.9 


80.6 

3ZU 


(*)  AftyanprliaafaicFgoodMITWaftigffUKypTgionw  1998  awll365i>*on  in  1997. 


Cash  flow  880.0  1,653 

Investment  In  property,  plant  and  equipment  559.7  1,100 

Shareholders'  equity  5,792-5  5,651 

Net  debt  5420.1  4.940 


The  financial  statements  for  the  first  half  of  1998  consolidate 
the  accounts  of  Bertrand  Faure  and  Eria  for  the  first  time.  In 
order  to  allow  for  meaningful  comparisons  with  the  previous 
accounting  period,  a pro-forma  consolidated  income  state- 
ment has  also  been  drawn  up  for  1997,  as  well  as  for  the 
balance  sheet  at  December  31,  1997,  on  the  basis  that  the 
acquisition  and  its  refinancing  had  taken  place  under  the  same 
conditions  during  the  first  half  of  1997. 


Operating  profit  for  the  Group  as  a whole  rose  to  FF  857-9 
million,  6.5%  of  sales  and  an  increase  of  FF  96.2  million  over 
1997. 

This  increase  was  offset  on  the  one  hand  by  the  increase  in  tax 
expense  and  on  the  other  by  provisions  for  restructuring 
following  the  merger  of  Bertrand  Faure  and  Eria.  These 
provisions  are  also  intended  to  cover  the  cost  of  the  industrial 
restructuring  necessary  to  improve  operating  margins  in  the 
'Other  Equipment"  sector. 

After  deducting  amortization  of  goodwilL  totalling 
FF  136.7  million  (including  FF  126.6  million  relating  to 
goodwill  arising  from  the  takeover  of  Bertrand  Faure), 
the  Group's  share  of  net  profit  stood  at  FF  262.4  million,  a 
decline  of  FF  23.5  miltion  compared  with  1997,  representing 
earnings  per  share  of  44.20  francs. 

Ihe  Group's  cash  flow  stood  at  FF  880  miUion,  6.6%  of  sales, 
as  compared  with  investments  in  property,  plant  and 
equipment  which  rose  to  FF  559.7  million. 


[ Business  review  ) 

Sales  during  the  first  half  of  1998  were  particularly  strong  in 
all  the  Group's  activities  reaching  FF  13,278.0  million,  a 12.2% 
increase  over  the  first  half  of  1997,  with  increases  of  17.3% 
and  7-8%  for  the  first  and  second  quarters  respectively. 
E*duding  invoices  for  tooling,  the  growth  rate  was  14.9%- 
This  growth  vras  of  course  dosely  connected  with  the  strong 
increase  in  vehicle  production  in  Europe,  up  6.8%  compared 
with  1997-  This  factor,  combined  with  our  strong  product  mix, 
enabled  us  to  offset  the  continuing  severe  downward  pressure 
on  prices. 

On  a countiy-by-eountiy  baas,  sales  growth  was  especially 
strong  in  Spain  (+  29.8%).  Italy  (+  47-1%)  and  North  America 
(+  27.3%)  and  to  a lesser  extent  in  Great  Britain  (+ 10.6%),  in 
France  (+  8.6%)  and  in  Germany  (+  7.4%). 


( Financial  position  J 

Taking  into  account  the  capital  increase  of  FF  2,159-2  million, 
net  of  expenses,  which  took  place  at  the  end  of  June,  Group 
shareholders'  equity  rose  to  FF  5,792-5  million  at  June  30, 
1998,  as  compared  with  net  borrowings  of  FF  5,120.1  million 
This  gives  a net  debt-to-equity  ratio  of  88%. 


f Outlook  for  1998  ) 

The  outlook  for  business  during  the  second  half  of  1998 
remains  sustained.  However,  during  the  second  six-month 
period,  taking  into  account  production  levels,  growth  will  be 
less  important  than  in  the  first  half. 

As  volume  will  only  partially  compensate  the  effect  of  pressure 
on  prices,  which  remains  very  strong  and  the  start-up  costs 
for  new  industriel  sites  outside  France,  the  1998  operating 
income  is  not  expected  to  be  higher  than  that  of  last  year. 


Bw  jonwq  effaces  tf  Botond  faint  and  Bab  ton*  to  1ft  oaXnn  a doss  fto/a  re  rte  duCMkrir  creps™*  - • 
fonxtt  - ret*  * nre*  esmtes:  maaoott  static,  ntere;  oiaxat  tpam,  fivn-enl  module.  The  group's  mnoci  safes 

mdtes  ff  U Uttan  rt*  i€.aoo  peer*  end  » pnix&m  sites  or  *5  reun&rt. 


faurecia 


Bertrand  Faure  + Eria 


BanKcrlreiano. 

U-S.  8300,000,000 
Undated  Variable  Rate  Notes 
Notice  is  hereby  owen  ihrtihe  Roto  of  Intorett  ho*  been  fixed  ol 
6 £25%  rtd  *s  kirtrt  pafdAs  an  Are  ralwoe  tore*  Payment 

Date  December  10,  1998  eg®'-*  Nfc  37  * mpotf  rt 

U5S10QJQ0  remind  d ihe  Note  mil  be  LBST.674.65, 

CTTlBAtKO 


LORRAINE  INVESTMENTS  LUXEMBOURG  SJL 

Socihf  Anoaymc 

KtpdEnddfrRlSS.Brtnrilaqtill  - L- 1 840  Luxembourg 
R.C  Luxembourg  B 47.798 

Notice  k even  of  the  anounl  general  meeting  oT  sbarrfreWei*  »ttdi  will  be  held 
on  September  18.  IQ98  u 1 4:00  bn.  at  Braque  dc  Luxembourg. 
I J.  Boulevard  Royal.  2449  Luxembourg- 

AGENDA 

I.  Repair  of  ibe  management  rad  report  of  ihe  suireaiy  Minor. 

3.  Approx*]  a(  the  nonaal  accounts  a<  per  Drcnuber  31.1 997. 

3.  ApproJwtKHl  of  prefix. 

4.  Dnidarge  lo  the  directors  and  the  vorowy  suiter. 

5.  Nomireiioirc 

6.  Miscellaneous 

Tbe  Board  of  Director* 


24 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


* 


INTERNATIONAL  CAPITAL  MARKETS 


EUROBONDS  BEIRUT  HOPES  TO  LIFT  PROFILE 

Lebanon 
in  plan  to 
raise  $250m 


By  Route  Khatef  in  Beirut 


Lebanon  is  pushing  ahead 
with  plans  to  raise  at  least 
$250m  through  a eurobond 
issue,  in  spite  o£  market  tur- 
bulence. the  finance  minis- 
try said  yesterday. 

Largely  staged  as  a public- 
ity stunt  to  promote  the  pro- 
file of  the  country  among 
international  investors,  the 
seven-year  bond  issue  will 
far  the  most  part  be  placed 
with  Lebanese  banks  rather 
than  foreign  investors. 

Lebanon  has  been  a fre- 
quent issuer  on  the  interna- 
tional capital  markets,  but 
most  of  the  paper  ends  with 
Lebanese  institutions  or  for- 
eign investors. 

The  S250m  issue,  managed 
by  Merrill  Lynch  and  to  be 
priced  in  the  next  few  days, 
is  part  of  a $2bn  programme 
aimed  at  restructuring  Leb- 
anese debt  and  alleviating 
the  much  higher  cost  of 
internal  debt  A first  issue  of 
Slbn  was  completed  in  April, 
with  about  two-thirds  placed 
with  Lebanese  banks. 

Local  demand  is  driven  by 
the  fact  that  more  than  half 
the  deposits  in  Lebanese 
banks  are  in  dollars  and 
growth  in  dollar  lending  has 
been  falling.  Foreign  cur- 
rency deposits  rose  by  S5bn 
last  year,  but  lending  in  dol- 
lars went  up  by  only  $1.5bn. 

Lebanese  banks  have  a 
vested  interest  in  maintain- 
ing the  stability  of  the  econ- 
omy and  the  often  shaky 
local  currency  but  also  per- 
ceive an  improving  economic 
and  political  environment. 

For  the  first  time  since  the 
end  of  the  civil  war  in  1990. 
the  target  for  the  budget  def- 
icit this  year  - at  a huge  42 


per  cent  of  expenditures  - at 
least  looks  attainable.  The 
holding  of  credible  munici- 
pal elections  this  summer 
has  also  sent  a comforting 
signal -ter  domestic  investors. 

Bankers  also  say  that 
Damascus,  the  power  broker 
in  Lebanon,  has  been  signal- 
ling that  it  will  back  a presi- 
dent in  the  autumn  elections 
who  will  be  committed  to 
working  with  Rafiq  Hariri, 
the  prime  minister,  to  imple- 
ment economic  reforms. 

These  indicators  led 
Thomson  BankWatch,  the 
rating  agency,  to  change  its 
outlook  on  Lebanon  last 
week  to  positive,  while 
emerging  markets  were  tak- 
ing a severe  beating. 

The  effect  of  the  emerging 
markets  crisis  on  Lebanon 
has  also  been  contained. 
With  most  foreign  holders  of 
domestic  Treasury  bills  hav- 
ing cashed  in  their  profits 
last  autumn,  those  selling  in 
the  past  two  weeks  have  cre- 
ated only  limited  pressure 
on  the  local  currency. 

Lebanese  banks'  appetite 
for  government  paper  is  the 
main  reason  spreads  on  Leb- 
anese issues  have  held  up 
much  better  than  in  other 
emerging  markets. 

Sources  in  Beirut  say 
spreads  on  recent  issues 
would  not  have  deteriorated 
significantly  even  if  political 
and  economic  prospects  had 
not.  improved,  because  large 
domestic  buyers  of  April’s 
Slbn  issue  appear  to  have 
committed  to  holding  the 
bonds  for  several  months. 

The  finance  ministry  and 
the  central  bank,  however, 
yesterday  said  they  had  not 
made  any  lock-up  deals  with 
the  banks. 


Bo  J easing  helps  prices  rise 


By  Jeremy  Grant  in  London 
and  John  Labate  in  New  York 


Prices  firmed  on  a fistful  of 
bond-friendly  factors,  includ- 
ing weaker  equity  markets,  a 
stronger  dollar  against  the 
yen  and  expectations  of 
softer  interest  rates  globally 
after  the  Bank  of  Japan 
unexpectedly  eased  mone- 
tary policy. 

The  BoJ  said  it  would 
guide  its  overnight  call  rate 
towards  an  average  0-25  per 
cent,  almost  halving  its  pre- 
vious target  of  0.45  per  cent. 

Traders  said  the  move 
might  put  pressure  on  other 
central  banks  to  consider 
cutting  rates,  although  few 
accepted  that  the  Bank  of 
England  might  do  so  today 
when  it  announces  the  result 
of  two  days  of  inflation  delib- 
erations. 


Eric  Fishwick,  interna- 
tional economist  at  Nikko. 
said:  “Markets  love  to  specu- 
late on  concerted  moves.  To 
my  mind,  this  Is  most  signif- 
icant for  its  insight  into  BoJ 
currency  attitudes:  it  seems 
to  be  sanctioning  a weaker 
yen,  which  for  Japanese 
bonds  is  positive." 

US  TREASURIES 
rebounded  from  weakness 
on  Tuesday,  as  the  dollar 
surged  against  the  yen  after 
the  Japanese  interest  rate 
move. 

By  early  afternoon  the  80- 
year  long  bond  yield  had 
fallen  to  5J289  per  cent  as  the 
price  rose  by  to  103&. 

Some  analysts  suggest 
that  the  benchmark  bond 
yield  may  fall  below  5 per 
cent  faster  than  previously 
thought  on  the  back  of  the 
Japanese  rate  cut 


Shorter-term  issues  also 
rallied.  The  10-year  note 
went  up  g to  105£.  yielding 
■L959  per  cent,  and  the  two- 
year  note  climbed  & at  lOO£, 
yielding  4^05  per  cent 

“The  bond  [future]  is  test- 
ing previous  highs,  and  that 
is  obviously  helped  by  the 
falling  stock  market,"  said 
Ken  Fan,  US  bond  strategist 
at  Paribas  Capital  Markets. 

US  equities  fell  back  in 
morning  trade,  with  the  Dow 
Jones  Industrial  Average 
down  by  almost  100  points 
by  midday. 

One  day  after  Treasuries 
sold  off  in  the  middle  of  an 
explosive  comeback  for  US 
equities,  the  focus  yesterday 
turned  to  Asia  and  the  Bank 
of  Japan's  cut  in  its  over- 
night lending  rate. 

Speculation  mounted  that 
further  cuts  would  be  made 


elsewhere.  Including  in  the 
US,  which  further  buoyed 
brad  prices. 

UK  GILTS  closed  sharply 
higher  on  the  Japanese 
interest  rate  move  but 
underperformed  other  core 
European  bond  markets, 
principally  bunds. 

The  December  10-year  gilt 
future  settled  up  0.51  points 
at  112,79.  tn  the  cash  market 
the  spread  between  the 
benchmark  gilt  and  bund 
contracts  widened  by  five 
basis  points  to  119. 

GERMAN  BUNDS  held  on 
to  solid  e*'"-**  hi  late  trading 
as  German  stocks  lost 
ground  and  Wall  Street 
opened  lower. 

The  December  10-year 
bund  future  settled  up  096 
at  112J56  in  volume  of  more 
than  500,000  contracts  traded 
in  Frankfurt 


EIB 

reopens 

dollar 

sector 

By  Edward  Luce, 

Capital  Markets  Editor 

The  European  Investment 
Bank  reopened  the  10-year 
eurodollar  sector  yesterday 
with  an  extensively  pre- 
marketed $750m  offering. 

The  bond  - the  EIB's  first 
dollar  10-year  in  more  than 


New  international  bond  issues 


Amoimt 

Coopon 

Price 

Maturity 

Fees 

Borrower 

DL 

* 

% 

■ US  COLLARS'  .-  7. ' 

• f;'. 

V " . - 

European  Frerostment  Bark 

750 

5.375 

992am 

Sop  2006 

0JJ25R 

Ftabobank  Naderiand 

SOO 

5^0 

994)41  R 

Sep  2008 

CL335R 

Flams  Mtg  Carp,  Cte  A1(a1)£ 

100 

(ai) 

ioaoo 

Oct  2032 

0.15 

Rama  Mtg  Cotp,  Cts  A2ia2)t 

284 

(a2) 

100.00 

Oct  2032 

020 

GECCW 

300 

6.75 

99.B4R 

Sep  2008 

032SR 

■ STERLING 

Chelsea  BuiftSng  Society* 

125 

W 

100.00 

Oct  2001 

025 

■ SWISS  francs'  - VYf 

Nad  Waterachapabank 

150 

350 

102.80 

Oct  2009 

2.75 

■ EUROSM  . 

- 

Kingdom  of  Swedsnid) 

Ibn 

5.00 

1C235H 

Jan  2009 

0.15R 

Sproatf 

bp 


JP  Morgan  Securities 
JP  Morgan  Securities 


Greenwich  NatWest 


ABN  Amra£uridi  Branch) 


+220)  JPM/Paribaa/Warburg 


Final  toms.  nor-caHaWe  unloss  stood.  Yield  spread  (over  govt  bond!)  at  launch  suppted  by  load  manager.  * Floating -raw 
note.  FL-  fixed  to-ofla r price;  t**s  shown  at  re-offer  level,  a)  Secured  on  Australian  residential  mortgages  originated  by  Rams 
Mortgage  Gorp.  Callable  from  KV1  (MU  at  par.  20%  cleanup  cal.  all  Av  ffe  27  yrs.  3-rrnh  Ubor  +i4tjp  to  Oct  04.  than 
+30bp.  a2)  Av  0te:  63  yrs.  3-rmh  Ubor  *10bp  to  Oct  04,  then  +50top.  a3)  Class  B:  Si  6m.  6 yre.  3ML  +43bp  to  Oct  04.  then 
♦Stop,  b)  $4  50m  launched  Tuesday  was  Increased  to  S750m.  cl  3-mth  Ubor  +I0bp.  d)  Fungible  with  E2bn.  Plus  228  days 
accrued,  e)  Payments  in  Ecu  prior  to  Emu.  Spread  relates  to  French  govt  Ecu  bonds,  i)  Over  interpolated  yield. 


six  months  - followed  a 
notable  improvement  in 
market  sentiment  in  the  past 
few  days. 

“There  is  now  an  appetite 
for  eurobonds  again.”  said 
an  official  at  Morgan  Stan- 
ley. joint  lead  with  Merrill 
Lynch.  “But  it  is  confined  to 
AAA  borrowers.” 

The  bond  was  priced  to 
yield  44  basis  points  over  the 
Treasury  benchmark  - 
about  19  basis  points  wider 
than  the  spread  on  its  last 


10-year  issue.  However,  this 
was  significantly  tighter 
than  where  the  EIB  (and 
other  supranational  borrow- 
ers) was  trading  last  week. 

The  World  Bank's  10-year 
benchmark  was  trading  at  a 
spread  of  40  basis  points 
over  the  10-year  Treasury 
yesterday,  compared  with  a 
nadir  of  about  55  basis 
points  in  recent  days.  Double 
A credits  have  also  tightened 
in  recent  days,  though  less 
sharply. 


“The  market  is  decom- 
pressing as  we  would 
expect,”  said  an  official. 
Swap  spreads  have  also 
tightened,  with  the  10-year 
spread  narrowing  to  70  basis 
points  yesterday  from  85 
basis  points  at  one  stage. 

SWEDEN  also  reopened  its 
10-year  euro-denominated 
benchmark  with  an  Elbn 
add-on.  Reaction  to  the  bond, 
priced  at  22  basis  points  over 
the  curve,  was  mixed  - with 
some  criticism  of  the  timmg. 


Ten-year  euro  swap 
spreads  widened  by  about 
four  basis  points  yesterday 
in  a jittery  market.  The  Swe- 
den offering  - lead-managed 
by  JJ*.  Morgan.  Paribas  and 
Warburg  - widened  by  about 
one  basis  point  after  launch. 

Others,  including  RABO- 
BANK and  GECC,  took 
advantage  of  the  improve- 
ment in  dollar  spreads  to 
come  to  the  market.  Few. 
however,  expect  credits  of 
AA  or  below  to  return  soon. 


DUALJJSTING  REDTAPE  OVERCOME  _ 

Israel  to  lift 
objections  to 
US  moves 


By  Judy  Dempsey  In  Jerusalem 


Israel's  Securities  Authority 
will  lift  objections  to  dual- 
listing  of  Israeli  companies 
currently  trading  on  the 
New  York  Stock  Exchange 
and  Nasdaq  but  so  far 
blocked  by  red  tape  from 
trading  in  Tel  Aviv. 

The  move  follows  the  con- 
clusion of  a committee, 
headed  by  David  Brodet.  for- 
mer director-general  of  the 
finance  ministry,  which  rec- 
ommends a fast-track  system 
for  dual-listing  of  Israeli 
companies  traded  in  the  US. 

Once  implemented,  ana- 
lysts said  liquidity  would 
increase  significantly  on  the 
Tel  Aviv  Stock  Exchange, 
which  has  recorded  average 
daily  volumes  of  Shk279m 
($72m)  over  recent  weeks. 

“There  is  no  doubt  turn- 
over would  rise  sharply,” 
said  Eli  Nahum,  head  of 
trading  at  investment  house 
Nessuah  Zannex. 

Saul  Bronfeld.  managing 
director  of  TASE.  recently 
predicted  volume  and  com- 
missions could  increase  at 
least  25  per  cent.  The 
exchange  has  a market  capi- 
talisation of  Shkl40bn.  while 
in  New  York  Israeli  stocks 
have  a market  capitalisation 
of  about  S20bn. 

The  potential  inclusion  of 
some  100  stocks,  many  from 
the  hi-tech  sector,  will  boost 
the  number  of  players  on 
TASE.  which  has  been  domi- 
nated mainly  by  a few  large 
Israeli  families,  banks  and 
institutional  investors. 

It  could  also  make  TASE 
more  attractive  to  foreign 
investors,  who  until  recently 
accounted  for  about  12  per 
cent  of  daily  turnover. 


After  the  start  of  the  Rus- 
sian crisis  last  month,  they 
moved  to  the  sidelines,  push- 
ing down  the  TA-100  and 
Maof-25  market  indices  by  9 
per  cent. 

Foreign  investors  have 
repeatedly  complained  that 
the  liquidity  of  Israeli  stocks 
traded  in  Tel  Aviv  is  too  low. 
with  majority  stakes  gener- 
ally controlled  by  a Few  fami- 
lies and  a complex  system  of 
cross-holdings  between 
banks  and  the  largest  hold- 
ing companies. 

According  to  Kobi  Avra- 
mov. analyst  at  TASE,  the 
public  holds  more  than  50 
per  cent  of  the  share  capital 
and  voting  rights  in  only  38 
of  the  660  stocks  listed  on 
the  exchange. 

“This  has  also  created 
problems  for  liquidity  and 
transparency."  said  Ronit 
Harel  Ben  Ze'ev,  economist 
at  TASE. 

However,  small  investors 
could  also  benefit  from  dual 
listings  since  they  would  no 
longer  have  to  pay  triple 
commissions  to  trade  Israeli 
shares  on  Wall  Street. 

The  Brodet  committee  rec- 
ommended that  the  ISA  drop 
its  insistence  on  approving 
private  placements.  Further- 
more. it  should  accept  the 
New  York  Stock  Exchange 
Commission’s  approved  pro- 
spectuses instead  of  insisting 
on  its  own. 

The  requirement  for  com- 
panies to  notify  the  ISA 
immediately  of  negotiations 
with  outside  parties  should 
be  dropped  as  well,  while  the 
ISA  should  accept  in  princi- 
ple the  SEC's  rules  requiring 
it  to  be  informed  only  when 
an  agreement  has  been 
reached. 


WORLD  BOND  PRICES 


BENCHMARK  GOVERNMENT -BONDS 


BOND  FUTURES  AND  OPTIONS 


(M 

BU 

H 

0q  ®9 

Vfedq 

Marti 

Vtor 

Sep  9 

Date 

Coupon 

Prtat 

YWd 

crtyW 

chg  lid 

Amnia 

01/01 

8.750 

1(77X111 

5l14 

4084 

-021 

-0.14 

+017 

06A» 

8750 

1244099 

552 

4084 

-013 

-0.12 

-087 

Antes 

07/DO 

5875 

1038200 

352 

-a  ID 

-aio 

-088 

-050 

01/08 

5800 

104  7800 

436 

-0.12 

-0.17 

-084 

-183 

Batgton 

01/00 

4800 

100.4600 

~1B3 

40.01 

-085 

-024 

-037 

03/08 

1750 

110.1600 

442 

-an 

-aio 

-034 

-182 

Creeda 

03/00 

1000 

99X000 

.f* 

-087 

-aio 

+0.10 

+188 

0608 

1000 

1038900 

5.48 

-083 

- 

-008 

-052 

Dwiwk 

11/00 

9000 

1098800 

485 

-0.09 

- 

+ao2 

-024 

11/07 

7000 

1168300 

-^.70 

-0.10 

-086 

-aw 

-1.53 

FMaod 

01.99 

11800 

HE- 4922 

1.15 

-ai2 

-an 

-088 

-070 

04AM 

6000 

1113060 

'152 

-012 

-0.11 

-0.19 

-185 

Fnnce 

01/00 

4 000 

100.5600 

-a.53 

-006 

-087 

-029 

-0.48 

04.05 

7-500 

1203100 

“39* 

-aij 

-0.15 

-0.43 

-121 

04/08 

5250 

1074400 

,489 

-009 

-0.10 

-084 

-187 

04/29 

1500 

1(778000 

!5XJ 

-007 

-ail 

-017 

-133 

Gwnreqr 

03/00 

4000 

1008900 

*087 

-an 

-0.11 

-089 

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104)5 

6500 

114  7900 

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-0.18 

-041 

-181 

01/08 

5250 

1012800 

415 

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-150 

01/28 

5625 

1094100 

5 00 

-086 

-an 

-0.75 

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lOW 

6500 

1(774000 

392 

-021 

-081 

-053 

-1.87 

06/08 

1000 

111  7000 

4.61 

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4 500 

101.4600 

380 

-013 

-018 

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06/03 

4 750 

102.8200 

487 

-an 

-ais 

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-1.W 

0606 

5000 

103.4300 

455 

-009 

-0.12 

-021 

-1.83 

11/27 

5 500 

117  7100 

589 

-plK 

-0.08 

-003 

-168 

Jmm 

03/00 

6400 

IQS  0600 

038 

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-082 

-005 

-013 

06/03 

4500 

U7850Q 

■080 

-0.01 

-004 

-0.12 

-076 

09.1)5 

10QQ 

1138700 

1.08 

-aw 

-087 

-0.17 

-103 

03/18 

2700 

1113300 

188 

-002 

-C04 

-021 

-1.02 

Hetoartmti 

05.W 

9000 

1085400 

154 

-005 

-ow 

-086 

-050 

07/68 

1250 

1075400 

429 

-010 

-au 

-085 

-1.31 

Haw  Zealand 

KV01 

8000 

104104S 

610 

♦002 

-an 

-045 

-108 

11.06 

3 000 

1109226 

627 

♦002 

-007 

*003 

-076 

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01W 

B 000 

1003750 

755 

-012 

*020 

+200 

+106 

01.97 

6 750 

1080000 

552 

-a  04 

-a  12 

*015 

-0*4 

duo 

S375 

1025300 

382 

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-023 

-053 

-155 

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5J7S 

1061(00 

458 

-007 

-008 

-027 

-167 

Spell 

woo 

87M 

lWBKffl 

383 

-007 

-0.14 

-0  48 

-138 

01.08 

6800 

111  DIM 

453 

-010 

-016 

-025 

-185 

SMn 

cun 

10  250 

1042420 

425 

-005 

-006 

-008 

-054 

f&OB 

6500 

1127630 

4 81 

-009 

-088 

-007 

-173 

Swtarfred 

0300 

5000 

104  9400 

180 

_ 

-004 

-089 

-017 

0607 

4500 

1138800 

269 

-an 

-OOI 

-088 

-086 

UK 

HU! 

7 000 

1030391 

593 

-012 

-a  18 

-039 

-033 

i:oj 

1500 

1045000 

550 

-on 

-015 

-040 

-1.48 

cvr 

72SO 

ll*«l»3 

529 

-0  07 

-a  i2 

-0  34 

-1.71 

1228 

6000 

114  9375 

5.03 

-004 

-0.12 

-081 

-1.69 

«S 

own 

1500 

1009604 

410 

-a  or 

-012 

-aw 

-10S 

0603 

5500 

1023770 

492 

-006 

-013 

-049 

-189 

0M8 

56K 

1M  8375 

4*1 

-aas 

-009 

-0.42 

-184 

1127 

113 

1108944 

588 

-003 

-004 

-024 

-124 

ECU 

07™ 

4 000 

1005100 

370 

-012 

-089 

-034 

-077 

W08 

5 SO 

107  0900 

433 

-an 

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-0  33 

-156 

LcnVn  ajn  -tint  vrt  nnn-da,  Haraom  DmffT  Momum 

Yktt,  Lac*  mw  ontmlAmus&scd  Mn  Yvmfc  stow  liar  Kafr  ssMt  hwkhoo  » atizs  w 
tml  Mntw  ft  imtami 


10  YEAR  BENCHMARK  SPREADS 

Spread  Sptad  Spread  Spread 

Bd  « vs  Bid  « vs 


SapS 

YMd 

Bunds 

T-60MS 

nekt 

Buna 

7-Bonft 

Australia 

552 

+183 

♦0.53 

Mew  Zfeatand 

627 

+2.13 

+128 

Austria 

4 JO 

+02S 

-059 

Hormtf 

549 

+125 

+0.50 

Begum 

444 

+0  30 

-0.55 

ftjrtugel 

4X6 

♦044 

-0.41 

Canada 

346 

+184 

+0.49 

Spam 

4.60 

+046 

-039 

DmnuA 

4.70 

+0.56 

-arg 

Sweden 

4X2 

+068 

-017 

Finland 

4.52 

+038 

-047 

Swtcntano 

290 

-124 

-2.09 

Franca 

4 31 

+017 

-068 

UK 

5.18 

+1X1 

+0.19 

GemWK 

414 

- 

-0.85 

85 

459 

+025 

- 

Ireland 

452 

+0.38 

-047 

ECU 

435 

+021 

-084 

Italy 

4 S3 

+0.49 

-036 

5onr  BRreewe  DB/ft  wmoi 

Japan 

1.30 

-2X4 

-169 

London  cures  * Hew  YM  dares 

Hedreitanos 

489 

+015 

-070 

JflreaM 

rtrt  San 

EMERGING  MARKET  BONDS 

D3f5 

tttis 

Sprd 

Red 

SS  P 

Bid 

BW 

efioa 

enge 

w 

SapS 

dale  Cmpn 

fating 

price 

ykW 

rid 

rid 

IB 

■ EUROPE 

Croatu 

ETC 

7X00 

BB8- 

93  0068 

9.42 

*059 

+1X1 

+4X5 

Pcund 

07.-W 

7.12S 

88B- 

94X07D 

832 

+023 

+127 

+3.47 

hsaa 

10X00 

CCC 

217500 

45X3 

-0.40 

+22.35 

+40X3 

■ LATH  AMERICA 

A-gtnma 

OM? 

97S0 

BB 

7D5B2S 

1195 

-021 

+2.77 

+066 

Brad 

0S7? 

10125 

BB- 

57 5938 

17X7 

-049 

+4  51 

+1238 

MertO 

05/26 

11500 

SS 

900000 

12.81 

+001 

+2.00 

♦753 

■ ASIA 

CMu 

07.06 

7 750 

BB8+ 

91.1626 

939 

+0.35 

+1X3 

+4.47 

Pnappmes 

1016 

8.750 

BB+ 

880000 

1152 

-021 

+163 

+8.40 

TfrftbPd 

04TC 

7.7W 

688- 

67.0500 

1844 

+059 

+4.44 

+9  49 

■ AHUCWMODLE  EAST 

Lftarasr 

07/00 

9.125 

68- 

99.4062 

9.46 

+059 

+1.2T 

+4ES 

Saffli  Africa 

10/DS 

8375 

BB+ 

85.4233- 

■1T.20 

+1X6 

+1.99 

+628 

Turirey 

tfi/07 

10000 

B 

800000 

lies 

-013 

+222 

+7.74 

■ BRADY BONDS 

Agcntiiu 

5.750 

BB 

61.B750 

1027 

-0.02 

+129 

+5.04 

Brad 

04/14 

5 000 

B8- 

56X750 j- 

14  41 

-0.44 

+2.28 

+933 

Meuco 

12/19 

6 250 

86 

71.8750 

'Sir 

+007 

+0X2 

+4.14 

Venezuela 

03/20 

6.750 

B+ 

586750 

12.19 

♦0.18 

+1X6 

+7.01 

lenaen  cfeetiq.  Were  n US  5«te:  tewohe  tae/FT  hfemadm. 

Stanfart  IIWj  nrtmg* 


France 


■ H0TKNAL  H1BKH  BOND  BITWES  (KSTff)  FFr500.000 


Open  Senprta  Change  H^i 

Sep  10822  109X2  +1X1  T09.17 

Dec  1E.75  10057  * 1.02  108.70 

■ L0KS  TERM  FRENCH  BOND  OCTIOfS  (MATT) 

low 

108.16 

107.75 

EsL  voL 

137.635 

24.317 

Open  ht 
90707 
45X44 

Price 

OCt 

Nov 

Dec 

oa 

Nov 

Dec 

TtQ 

4X3 

4X3 

4X6 

. 

0X3 

0X7 

104 

3X3 

195 

4X1 

0X1 

0X5 

on 

105 

2X4 

3X2 

110 

0X2 

Oil 

0.19 

106 

1X6 

213 

227 

0X4 

0X1 

0X6 

EX  Ml  ML  ere  12S8  FteL89«  AMM  Ofl  Open  M,  C4h  3150  PlB  40277  . 

Gennany 

■ NOTIONAL  GSUIAN  BUD  FUTURES  (UFTE)"  DM2 50X00  100«a  d 100* 

Open 

Sen  price  ChstgB  H#t 

low 

EsL  wl 

Open  W. 

Dr 

111X0 

11285  +1.09  11290 

111.80 

365 

5482 

Mar 

111X2  +1X9 

0 

0 

■ MOTIONAL  CentAN  BUND  FUTURES  (DIB)  OM250XDO  TOOUn  ft  100* 

Open 

Sat  price  Change  Hgti 

LOW 

ESL  Ml 

Open  W. 

Dr 

111.79 

11289  +0.99  112X3 

111.78 

514,182 

448.955 

Mar 

111X8 

11278  +0X8  1127B 

111X4 

1X95 

394X82 

■ 8UW  RITURES  OFreWKS  11^  DU2SO000  POMS  fll  100* 

CMta 

oulKE 

nil*  ^ 

Price 

oa 

Nov  Dec 

oa 

MOV 

Dr 

11290 

0.65 

0X4  1.14 

0X0 

059 

079 

11300 

0X8 

088  088 

0X3 

0X3 

1.03 

11350 

020 

047  067 

085 

1.12 

1X2 

at  «a  na.  o*  o pub  a Pm*xn  ays  open  w..  cm  noe  Wa  wo 


■ NOTMWAL  SBB4AH  BMP  (WBL)  FUTURES  jQTB)  DM250,000  lOCBta  Of  100% 


Open 

Sen  price 

Chrege 

Btf! 

LOW 

EsL  vd 

Opre  frit. 

Mar 

107.60 

107X0 

♦079 

107X0 

107X0 

201 

_ 

Dec 

107X6 

108.05 

+oe 

108.10 

107.36 

223.087 

196,555 

Italy 

■ HonoHftL  nauMi  cow,  gam  (btp)  fuiurb  w ura  200m  imps  of  100% 


Open 

Sen  price 

Change 

«9fr 

Low 

Est  Ml 

0pm  ML 

DR 

109  61 

11030 

*0X9 

11048 

109X8 

29989 

78340 

MW 

11028 

♦081 

0 

D 

■ rtAUAH  GCYT.  BUKO  (BTPJ  FUTURES  OPTIONS  IUFFQ  Ura2«»>  lOWe  Of  lOCfiL 

Strike  CALLS PUIS 


Price 

oa 

Nov 

oa 

Nov 

11000 

052 

0.75 

022 

046 

11050 

026 

0X0 

0.48 

070 

11100 

on 

031 

0X1 

1X1 

at  a*  os.  cm  o Pua  o rievren  ay  s car  nt,  cab  100  pm  100 


Spain 


■ WTWML  SPAHgH  BOND  FUTURES  (MgFF) 


Open 

Sen  price  Change 

High 

Low 

EsL  Ml. 

Open  kt 

Sep 

11265 

11329  +065 

113.34 

112X7 

87,366 

70011 

Ok 

113.30 

113X9  +0X0 

114X0 

113X0 

11,616 

•4X91 

UK 

■ NOTIONAL  5 YEAR  CUT  FUTURES  (LffFQ  £300.000  lOOlto  of  1 00* 

Open 

Sett  price  Orange 

rtgti 

Low 

EsL  voi 

Opre  It 

Sep 

105X5  *0X0 

0 

581 

Dtt. 

105.80  +0X0 

0 

169* 

■ NOTIONAL  UK  QLT  FUTURES  (UFF&'  £100,000  lOOPweMOO* 

Open 

5«I  price  Change 

*gh 

UM 

ESL  Ml 

Opre  tat 

S«4> 

11203 

112X7  +052 

112X5 

Ili03 

296 

5302 

Dee 

112X3 

T 12.79  +051 

113.04 

11212 

59170 

150299 

■ LONG  GILT  FUTURES  OPTIONS  (IRE)  £100.000  1008b  Of  100* 

FriW 

Oa 

Nov 

Da 

oa 

Nor 

DR 

11250 

0X0 

113 

U2 

0.51 

0X4 

1.13 

11300 

053 

089 

1.16 

074 

1.10 

1X7 

11360 

034 

0.70 

0X5 

1.05 

1.41 

1X6 

ES.  (d  Cab  SflK  Pao  Mil  ererem  oar  s Cf*»  W.  GBb  +HJ4  run  2T«W 

US 

■ US  TrEaSURT  BOM)  FUTURES  (C&T)  SI 00X00  32nd&  of  100* 

Open 

latest  Change 

ifSh 

LM 

EsL  YCL 

open  to 

Sep 

125-23 

127-12  +0-18 

127-22 

126-17 

39,70* 

Dec 

126-19 

127-08  +0-19 

127-18 

126-10 

480708 

718.734 

M* 

126-30 

126-31  +0-19 

126-31 

128-28 

136 

61.480 

Japan 

■ NOTIONAL 

LONG  TERN  JAPANESE  GOVT.  BOND  FUTURE  {LFFE}  YlOOm  lOOtes  of  100* 

(ton 

Obsb  Change 

High 

L M 

EsL  Ml 

opw  to 

Da 

135.71 

136X0 

136X8 

135.67 

85 02 

ns 

Mar 

134X7 

13589 

134X7 

134X7 

1 

N 

- LITE  sans  Hu  nbo  on  m M Open  Santa  Ipnlr  previous  tm. 


Ecu 


■ ECU  BOW  FUTURE  (MATT)  ECU100X00 


Oper 

i Steprta 

Change 

m 

LAW 

EsL  ML  Open  to 

Sen 

106X8 

+0X0 

- 

- 

0 

18 

US  CORPORATE  BONDS 

0W» 

Mdft 

Spd 

Red 

S S P 

Bid 

Bid 

tege 

ctoe 

* 

Sep  8 

da 

Coupn 

Rating 

price 

Jteld 

y« 

ykf  Govts 

b umnEs- . 

• 

* _ i 

Pac  Bel 

07A32 

7X5 

AA- 

104X055 

5J9 

_ 

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+0X1 

NY  Ta! 

06/25 

7X0 

A+ 

101.7301 

6X5 

+0X3 

-0.13 

+1X1 

CWE 

oara 

8.00 

B88 

112X102 

6X4 

+0.02 

-Oil 

+121 

VntowoAU  ;T 

" ' T ’ 

/ •!, 

V.-  - 

*'  * J -• 

* • 1 

GECC 

05/07 

175 

AAA 

1119966 

5X2 

♦002 

-015 

+089 

Bare  One 

08/02 

725 

A+ 

104X122 

5X1 

-0.01 

-021 

+0X3 

Media  One 

01/07 

7X0 

BBB 

T 05.4948 

6X3 

+0X1 

- 

+140 

■ aousnuu  . 

“ ’ - *T 

^ ■ 

WMXTacfi 

04/99 

6X5 

888+ 

100.1517 

5X5 

-004 

-014 

+127 

WalUari 

05/02 

£75 

A* 

104.4325 

540 

+0X1 

-0X8 

♦0X2 

Dajton  tori 

06121 

9.70 

BE8+ 

133X490 

177 

+1X6 

♦Oil 

+1.43 

■ ASBidEB 

” 

>. 

; . - ■ 

F«JC 

04/07 

7.14 

HJA 

110.4067 

5X9 

+002 

-015 

+0X6 

SIMA 

03/00 

7X0 

N/A 

1010681 

5X4 

+0X2 

-022 

+046 

FNMA 

02/18 

195 

N/A 

135X235 

5X4 

+0X6 

-0X9 

+0X0 

TO) 

08/06 

195 

N» 

121X149 

5X6 

+0X1 

-015 

+053 

■ wsH  .nair  . 

» •' 

' * •,  ’ 

“ § " 

_ ‘J,  -* 

Store  Cord 

02/01 

9X8 

B 

95X750 

0X0 

re. 

_ 

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Axsa 

1 2/tn 

113 

BB- 

100X000 

0X0 

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Pacata 

O&TM 

1175 

B- 

92.0000 

OOO 

- 

- 

- 

Iff  Spoon  s IMS  imm  YM*  sad-nxd  Mb  Sua  tosaasr  DwaFT  Waitete. 


US  INTEREST  RATES 


Latest  Trenry  Bffis  and  Bond  Yields 

OremonBl Two  year 4X4 

ftenerte.  . .. 8%  TMomortU • Three  year. 4.78 

Broker  Ires  rare 7%  Ttaemerti 4X9  Prewar 4X3 

Faliaidt 5B  Stumor* — _ 4 * 10-yaw  5.00 

FedJute  ri  nanretem  - ore  yea 4.83  30-yww  5X1 


INTERNATIONAL  BONDS 


Sep  a 

Red 

data 

Coupon 

SSP 

Rating 

Bid 

price 

Bid 

fit 

Bay's 

chge 

1* 

Mart 

Cto 

tfd 

Spread 

V 

Gmts 

■ BIRO  DM 

■*  * 

m 

02/07 

1750 

AAA 

109X500 

4X3 

-0.12 

-0X4 

+018 

Spam 

01/07 

1750 

AA 

1092200 

4.40 

-004 

-028 

+025 

Phfip  Morris 

03/04 

5X75 

A 

104.1300 

4X0 

-0.16 

-059 

+060 

FhtandFW 

09/02 

3X29 

AA 

100X411 

3.14 

-017 

-0.48 

-050 

■.BUBO  in 
Austria 

01/04 

1500 

AAA 

107.1500 

3X8 

-0.10 

-0X8 

+012 

Ataey  Nat 

02/04 

6X00 

AA 

109.1600 

4.08 

-009 

-oxa 

+022 

Grad  Fonder 

02AM 

1125 

A 

122X000 

447 

-0.13 

-021 

+0X1 

3CFFW 

12/01 

3X17 

AA- 

919702 

3X1 

-013 

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FINANCIAL  TIMES  THURSDAY  SEPTEMBER  JO  J 998 


to  iift 

lections  to 


CURRENCIES  & MONEY 


Yen  tumbles  after  Japanese  rate  cut 


-- 

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RURiq^REPpOT 

By  Richard  Adams 

The  Bank  of  Japan  *s 
decision  to  print  its  way  out 
of  trouble  sent  the  yen  tum- 
bling against  the  US  dollar 
yesterday. 

The  yen.  shed  around  three 
per  cent  of  its  value  during 
European  trading  hours, 
after  the  central  bank's 
announcement  It  cut  its  tar- 
get tor  the  overnight  money 
maritet  interest  rate  - the 
interbank  lending  rate  - 
from  0.50  per  cent  to  around 
0.25  per  cent.  The  discount 
rate  - at  which  the  central 
bank  lends  - was  unchanged 
at  0.50  per  cent. 

The  bank  also  said  it  will 
supply  liquidity  to  the 
money  markets  as  needed, 
effectively  expanding  the 
money  supply,  regardless  of 
the  call  rate. 

But  analysts  in  Europe 
questioned  whether  the 
move  will  give  much  aid  to 
the  stricken  economy,  with 


its  falling  domestic  demand 
and  weak  stock  market. 
Rather  than  help  domestic 
lending,  the  extra  liquidity 
may  simply  be  used  to  buy 
government  bonds,  or 
‘exported*  offshore. 

“Flooding  the  Japanese 
economy  with  liquidity  at 
the  present  time  will  tend  to 
be  extremely  yen  negative. 
Some  reaction  has  been 
seen,  more  is  to  follow, n said 
Tony  Norfield  at  ABN- Amro 
in  London. 

The  US  dollar  gained  Y5 
by  the  end  of  trading  in  Lon- 
don. to  finish  at  Y137J.  Ster- 
ling strengthened  by  Y9  to 
Y228,  its  highest  rate  against 
the  yen  for  a week. 

Against  the  D-Mark,  unen- 
cumbered by  the  rate  cut 
talk  surrounding  the  dollar, 
the  gain  was  even  stronger. 

■ POUND  g NEW  YORK 

Sap  B --oast-  -Pro,  dew - 

twot  1.6600  1.6555 

1 mil  1.6574  1JS2B 

3 Mft  16524  16478 

1 W 16326  16283 


The  D-Mark  appreciated  by  4 
per  cent  and  Y3  to  Y79.51. 

Currencies  in  Asia,  or 
linked  to  Japan,  were 
weaker  after  the  move.  The 
US  dollar  was  also  influ- 
enced by  the  pending  report 
on  President  Clinton,  which 
is  due  to  be  presented  to 
Congress  next  week. 

■ The  Bank  of  Japan  hasn’t 
quite  adopted  Paul  Krug- 
man's  plan  to  stimulate  the 
economy  by  throwing  money 
out  of  helicopters  over 
Tokyo.  But  its  decision  to 
pump  liquidity  into  the 
money  markets  may  be  the 
□ext  best  thing. 

But  will  jt  work?  “While 
this  move  is  a sensible  step 
in  an  appropriate  direction, 
the  problem  remains  that 
the  real  economy  lacks  an 
adequate  home  for  any  extra 
liquidity,”  said  Brian  Martin 
at  Barclays  Capital 

“In  basic  terms,  the  Ttenk 
of  Japan  is  promising  to 
print  a whole  lot  of  yen  that 
has  very  little  utility  within 


Short steritogspread' 

DKairtbwVa®flcsq*Br,a9 . 

Basis  potato  - > 

-66 r- 


• Jbn  tsoa.^ 


Japan  and  that  will  be  there- 
fore be  used  to  buy  foreign 
bonds.” 

Does  the  liquidity  policy 
shift  mean  the  Japanese  gov- 
ernment is  more  or  less 
likely  to  intervene  to  sup- 
port the  yen?  In  recent 
months  the  threat  of  inter- 
vention has  been  the  curren- 
cy's only  solid  prop. 

Some  think  the  move 
makes  intervention  less 


likely,  since  successful  inter- 
vention needs  to  be  accom- 
panied by  expectations  of 
tighter  monetary  policy. 

But  Paul  Chertkow  at 
Tokyo-Mitsubishi  thinirc  oth- 
erwise. A rapid  fall  in  tbe 
yen  would  undermine  the 
Japanese  equity  market  and 
negate  any  positive  impact 
from  the  loosening  in  the 
call  money  rate.  “For  this 
reason  we  believe  that  the 
risk  of  intervention  by  the 
Bank  of  Japan  has 
increased.”  Mr  Chertkow 
said. 

■ The  Japanese  rate  cut 
may  speed  up  similar  moves 
by  the  Federal  Reserve  in 
the  US.  The  expansion  in  the 

■ 0THB1  CURRENCIES 

Sep  9 £ $ 

Cm*  Rp  5077*7  -506707  305320  - 305750 
Mngny  380485  - 369830222.180 . 222.280 
tan  4981.40  - 496960300080  - 300060 
Knot  OSS72  - 06080  06050  - 06053 
An  96705  • 56812  36490  ■ 36540 
Rfcnd  96851  -800(7  36090  -36090 
Aosta  24.1135  - 281200 146000  - 156090 
UA£  81077  - aim  36727  - 36730 


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■ (M8»BKR7rUBB(MWDII125JOOpcrD*» 


■ JAMICSE  V»  FVTORS  (MU)  Yen  I25n  per  fto  100 


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05772 

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0.5810 

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36,340 

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05811 

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103 

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07475 

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■ SHtSS  FRANC  RUBES  0MM)  5Ff  125,000  per  SFr 

■ SnriUMB  RTOHUi  MR  £62500  per  £ 

:-f  j— 6 "■ 

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07075 

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20.414 

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07142 

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-00050 

- 

07140 

7 

33 

Mat 

- 

16450 

+00058 

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- 

3 

11 

UK  INTEREST  RATES 


LONDON  MONEY  RATES 

Sop  9 0*B-  7 (tow 


EMS  EUROPEAN  CURRENCY  UNIT  RATES 


StafegCb 
Ttaay  83> 

Bark  Bis 

Ute  Marty  df fS.  7i*  ■ 7 7t.  - 74 

Bata  Ibfel  (tape  7“  - 7h  1*  • 74. 


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IK  ctaaasf  tank  tax  toateg  iteWpefnrt1rWi6»4,1896 

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am  m tb  mb  «r  nauno  a «.  Date  aaana  a m zpe. 

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KUiigig«rasim»civng^a2^aoQjmaart8<<i(CT 


Sto  9 

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357600 

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0796244 

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92.480 

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Ea  earn  M m a*  >r  FtataM  CnsBaan  Qama  ae  ■ damtegita 

M (si  tpemt  (Mras  ae«W  * mt  aneXTJ>aBBBB  tarn  an  obb  cm 

team  COBH  at  aeai  m*e  «M  to  te  mm  la  a aaeac*.  mt  la  c 
man  * (a  cpnscj'i  mao  m tan  ft  Eg,  a«a  a»  Hm&sadagn 
)M  BW I AM  BMC  b| » M MCta  mi  teM  Itetata 

■ nauiDEMMSEMOPnONS  £31 250  (tarts  per  patata 


561  X 

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0.16  4 

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0.15  6 

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MtadtaaSU  1 Mm 
I *1 M tart  Ab 


Consul  Services  for  Financial  and 
Corporate  Restructuring  Assistance  Project 

The  Kama,  Famriol  Supervisory  CommisaonfFSC)  hot  received 
a loan  from  the  International  Bank  for  Reconstruction  and 
DeiefoftnenKlBRDi.  and  attends  to  apply  pvt  tf  the  proceeds  of 
this  lorn  to  payments  under  the  com  ract  for  Financial  htshnaioo 
Supervisory  Stroigthaotg. 

The  smites  Made  technical  assistance  for  enhancement  of  the 
overall  firamda!  sector  supervisory  process  and  procedures-  The 
ftnatod  sectors  targeted  for  supervisory  strengthening  include : 
hanking . insurance,  securities,  and  other  nonhank  financial 
institutions.  The  areas  of  focus  include  the  onsite  examination 
process  a financial  institutions,  offsite  supervision,  enforcement 
dhisum,  mabort&aan  iSvision.  database  development  etc. 

The  FSC  note  invites  eligible  consultants  with  appropriate 
mtemotkmul  experience  to  indicate  their  atom,  in  providing  the 
sect kts.  Interested  rauaiiuna  mua  provide  afontutitm  mhcatmg 
their  epmDfieatiaets  to  perform  the  sen-tetri  brochures,  description  of 
similar  •raipmierto.  experience  in  similar  conditions.  avaikMity  cf 
appropriate  skills  among  stag,  etc.l  Cansnhunts  may  associate  ip 
enhance  their  ytuEfirarims.  The  implemeraatim  of  the  project  uiR 
likely  require  up  to  one  year  with  evaluation  of  the  project 
mmkrtrd  a that  rime. 

Interested  ctmsukmts  may  obtain  furtoer  otfmtahm  at  the  address 
below  from  W:00  to  18:00.  Expressions  of  interest  must  be 
deform!  by  September 24, 1998. 

Please  naUzHas  is  not  a request  for  proposals. 

Steawtey  Ftegulacans  tayowan»«Tepm 

Franoal  Supentany  Commission 

27  YattvUcng,  YangdorgpotL.  Seal  13X00,  tooa 

Tel : flO-aSTTrara.  R« : $BH)37?1-S»7.  E+nti : geanoBooMoarJr 


n» 

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oa 

KN 

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090 

161 

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164 

nenasdMnNt.CteOAtaa  .hn  dffiDpMtat.  Cte  Win  A*  H2S5 
■ PHU6ELPW4 SE O-aUSRS 0PIWH5  QUSZ50Q  (Spar  014) 


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94.43 

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Dec 

9464 

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114,134 

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Mar 

9465 

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111.1i55 

467,378 

M HSTBEASOBT  801  RmBSSW  Site  ptf  100% 

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NpUcenf  ParttaJ  RrJnuprtou 

EUROPEAN  COAL  AND  STEQ.  COMMUNITY  (ECSO 
nhieHr^ 

Nteta  «b  Ibe  kolden  sTITL  MJtOOftOOftOO. 

Em  Nate  Pngrasaw  tfte-»6M«l-20e 

itte'WoieO 

NOTICE  IS  HEREBY  GIVEN  ia  accadanoe  with  Condrtkm  6 © of  tbe  Term 
Mid  Cmdhioos  of  the  Notes  rim  the  Issuer  will  redeem  pan  of  tbe  oustaaiUns 
Notes  flbe  Redemption'')  up  to  the  amount  of  ITL  19600600600.  - phis 

atessl  »»wd  interest  cm  Oaoher  14*.  1998  line  -Partial  Redetnptian  Dale"). 

Ike  PartU  RedempUoB  wH  be  ellMed  at  WlowK 
L ITL  4500.000001  - on  dr  following  Senes:  m.  65600001000.  - April  9*. 

1992/Aprtl  1999  ntaerialced  by  rile  teobal  Cenirme  do  7 rgacscmmc  (06 
— Notem  die  deaoimnMisa  of  m.  10600600  - eieb  numbered  7/1  id  7/696. 

1 ITl,  4,900000600  - os  ifae  fidtoMinj;  Series:  ITL  6560.000600  . April  9". 


3L  rn.  apoofjxum  ■ cm  rim  Senes : TTL  6.960600600  - April  9". 

!9K/  April  2001  wswrtalised  by  tic  Gtobai  Cemfionc  no  9 reprgenrin;  696 
Notes  ia  the  denontaHUon  of  ITL  1 Q6W600  - tadi  urabem!  9/1 » WWk 
4.  ITL  4.900600600  - ns  the  W towing  Senes  ITL  U.9606C0600.  - April  9*. 
1992/Anri  2002  BSteririised  by  te  Otobe]  Caahatt  no  10  tepteaeeiiiig  696 
fids  n ifie  dawn  tenon  ofoL  IDjOOOXXXL  - cadi  uuvbtfed  I tVl  to  IQffiAb 


hyiaent  of  ihc  atooain  of  ibe  penial  fedempa  oa  together  with  tbesoerned  nnatfl 
of  rim  Now  te  «-*■  aa  ibe  (efemmt  Oae  thereof  at  ibe  uccilieri  ofllce  of  dm 
Prioeqal  Paying  Asent  3»  adittaal  bdow. 

ClawM  spaa  tbe  EC5C  *10  be  patented  ten  yean  after  Ibe  dose  sMfor  patial 
mentation  as  regard*  ibe  amount  of  partial  redpmpopa  and  Cvb  years  after  ibe  dale 
ia  tor  payment  n regards  imeresi,  pra«  a>  Condition  J 1 of  die  Teems  and 
Ccarfmocs  al  the  Ntaev. 

SadteEmnpteMteEMlta 
1 4 . 2 1 , Boukvaid  dn  Prince  Hean 
L-1754  Leartabong 

By.  Soofte  tmnpteag  JeBan>pm.Unea4Ktat 
Ai  Pluu^il  ftympApm 


WORLD  INTEREST  RATES 


supply  of  yen  will  keep  4he 
dollar  strong,  representing^! 
further  tightening  of  US 
monetary  conditions.  “It  is 
quite  clear  that  Japan's] 
action  requires  an  immedi- 
ate response  from  the  Fed  if 
a substantial  dollar  apprecia- 
tion is  to  be  mitigated  and  if 
the  risk  of  a total  Wall  Street 
collapse  is  to  be  dimin- 
ished." said  Mr  Martin. 

■ The  Bank  of  England 
announces  its  decision  on 
interest  rates  today  at  noon. 
r /wiring  at  the  money  mar-  i 
kets,  the  December  96  and 
December  99  short  sterling  1 
spread  may  be  overoptimis-  < 
tic  about  the  chances  of 
near-term  UK  repo  rate 
reduction. 

If  the  Bank’s  monetary 
policy  committee  - as  widely 
expected  - leaves  rates  on 
hold,  the  spread  could  widen 
further  below  its  current 
minus  80  basis  points,  as  the 
market  anticipates  more 
aggressive  cuts  by  the  com- 
mittee next  year. 


%M  Mm 


MONEY  RATES 

Gept  DW 

tori 

am 

north 

Tiwe 

rates 

a* 

iris 

Om 

Ite 

UhH 

tew. 

Vn. 

an 

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rate 

Sagoo 

SB 

33 

34 

3; 

3V, 

660 

275 

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Francs 

32 

34 

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3J 

3S 

460 

- 

230 

Gravy 

34 

as 

3fi 

3£ 

32 

460 

260 

230 

hatend 

B i 

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43 

414 

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6.19 

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st- 

5 

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660 

660 

524 

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3i 

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41 

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are 

130 

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1^4 

13 

11 

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- 

160 

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53 

55 

55 

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5.00 

- 

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L 

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if. 

- 

060 

- 

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tetMlgnlt  Bxteg 

- 

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52 

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— 

5.43- 

568 

562 

566 

_ 

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- 

4£ 

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4 

3% 

_ 

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SDR  UriodDs 

- 

33 

3S 

33 

4 

- 

- 

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BIB  toloAH  I 

— Amt 

» Man 

IM  itaa  at  on  t»  ac  tertc  teat  Ms.  IB  CDs.  ECU  « OT  tu  DwcA  m 

EURO  CURRENCY  INTEREST  RATES 


Batyoi  pane 
Barth  Krone 
Gan»  bat 
Botch  atOte 
French  Franc 
fataguss  Ex. 
aante  Paata 
SMng 
SMa  Franc 
Canatei  Outer 
DSD rite 
UteLta 
Japanesa  Van 
fctan  EStaB 

Sort  arm  dm  an  i 


■ THRg  MOIfra  pets  FUtiaa  wuyata  tawta*  iterral  rte 

Own  Setl  pries  Omga  Ngh  Low  Esl  MM 

Sep  9646  9647  +062  9846  9845  10635 

Dec  9648  96.46  *605  96.46  96.43  821B 

■ TUBS  MONTH  EUROlUnC  RJIURES  0670*  OMIat  points  M 100% 


awn 

7 nays 

One 

Tim 

9* 

One 

Sim 

mortal 

nmttB 

mtfto 

year 

3S-« 

3K-3fi 

3&-31 

33-3; 

3ft  - 3ft 

3S-3S 

36  - V» 

4ft-  <i 

4}  - 4h 

42  - 

*i  * 41* 

4fc  - 4J 

3 ft-3W 

K-3H 

3^-31) 

3ft  ■ Si 

31 -3ft 

3ft  - 31 

3ta  -it 

3«  -3ft 

38-35 

3ft- 32 

aa-»i 

4ft- 4 

34  -3ft 

32 -3J 

3ft -38 

3£-3i 

33  ■ 3ft 
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3ft  -3ft 

4J  -4B 

4*  • 4» 

42-41) 

<i-42 

3g-y, 

4ft- 4ft 

4B-4J 

4ft-  4} 

41 -Aft 

4-Ti 

33-33 

7ft  ■ 7ft 

7; -73 

7J  - 73 

7ft-  72 

714-72 

n-n 

1ft  - 1ft 

16 -t; 

1ft  - 1£ 

1ft  - IE 

ift  - IS 

13 -IB 

51*  ■ 5ft 

52  - Sri 

53-5i 

55  - Si 

5S-5i 

53-52 

5ft  - 5ft 

53 -5ft 

52 -5ft 

5J  - 5ft 

SE-S 

s-sa 

5ft  - 5)4 

5ft -5'J 

5i-5i 

52-48 

41-42 

4i-4i 

ft-ft 

ft-» 

1 : ■ i 

G-S 

2-3 

! - E 

ft-J, 

3ft  -3 

ft.  - 4ft 

4ft  • 4V> 

5 - 4ri 

S’* -5 

Open 

Sett  pica 

(tags 

High 

Low 

Eta.  rrt 

Open  tat 

Sep 

99600 

96610 

+0010 

91525 

91500 

42213 

460887 

Dec 

96.400 

91440 

+0650 

91445 

91300 

83408 

522851 

Mar 

91455 

96620 

+0065 

96.530 

96.450 

67921 

513623 

ton 

99  415 

81495 

+0080 

96605 

91410 

57870 

289740 

■ 0«iS)liroaiBD8WHKRI1Bl»|L61^DM3mpolliart  100% 

Open  Seaprita  Ctaoge  ^ Lm  Esl  pot 
Sep  96545  +6610  0 

Od  96535  +0.010  0 

■ ms  UOHIB  EtffflURA  BJTBHS  (UFKJ-  LiDODm  poWte  d 1C0% 


Open 

sea  price 

Change 

Mgft 

Low 

Eta.  HI 

Open  tat 

Sri 

95610 

95640 

+0630 

05660 

94680 

Z7574 

156044 

Dec 

91200 

91250 

+0.050 

96280 

98.190 

23294 

162997 

Uv 

91430 

91490 

+0660 

91500 

91430 

B648 

275197 

Jin 

91400 

91470 

+0690 

91480 

91400 

6636 

638S9 

■ HUS  MOUTH  eon  SUSS  HUMS  FUTURES  pJFTE)  SFflra  potato  of  100% 


0pm 

Stet  prim 

Ounge 

Mtf 

low 

Eta.nl 

Opm  tat 

Sri 

98650 

91370 

+1030 

91390 

7744 

99962 

oec 

38240 

38270 

+1020 

91290 

98220 

17201 

79195 

H* 

96230 

88290 

+0620 

38280 

38220 

8197 

38247 

Jtn 

31130 

91180 

+0620 

91180 

91130 

1167 

23208 

■ TIKg  M0WH  EUROTBI  FUTURES  (LfFQ  TIOOni  pdnta  Bt  100% 

Open  Sea  price  Okhob  Ngh  lm,  Ea.nl 

S*p  9946  9646  +020  99.48  9948  550 

Dec  9950  +020  0 

Mr  9B53  +0.18  0 

- LJFTt  Mat*  ate  nM  on  APT 

■ 7MEE  MOUTH  BB0  FUTURES  flJFFE)  Gculnt  potato  at  100% 


(ton 

San  price 

Change 

Hgh 

IM 

Eta.nl 

Open  M. 

Od 

95650 

+0610 

0 

0 

Oec 

9B60D 

91330 

+0640 

91330 

91300 

365 

880b 

Mar 

91515 

91515 

+0665 

96615 

91515 

4 

5087 

Jta 

81490 

+0660 

0 

2071 

M BHUIA  OniMS  (LFfQ  LIDOOn  poU*  at  100% 


Sbfta 

MOB 

Sri 

— cjiip  - 

Dec 

Ms 

Sri 

85125 

0640 

0.12s 

85290 

0620 

1615 

1250 

0230 

9531S 

0610 

. 

0345 

Efi  HL  lota,  cw  4SB4  Pta  1SS  Ma  MaN  *pta  M.  Ota  insi«  Ata  1*8835 


Hdfyocr  results 


The  board  of  cfiractors,  chaired  by  Mr.  Frcaipats  Groppotte,  met 
to  review  amsofcdated  tesufe  for  iha  first  Raif  of  1998. 


CermAktsd  %uar 

7*  half 

rw 

Ift  nnCo raj 

1998 

1997 

Nut  tains 

7227 

6AS2 

4-14% 

Operating  tncoure 

1,192 

993 

+ 20% 

Operating  margin 

,6.3  % 

ISA  X 

(WhlCMM 

629 

517 

+ 22% 

Ntt  naught 

■3-a* 

80% 

Skong  sales  growtii  resulted  from  a combindion  of  bdore: 

- a healthy  rise  in  business  in  France  and,  even  mom,  on 
intomdiond  markets,  as  product  lines  bunched  in  the  pad  hw 
yean  gathered  momertum.  Ai  constant  sftvdure  and  exchange 
rates,  sdes  rase  6,4  % in  the  first  half  of  1998 

- consoiidction  of  recently  acquired  companies,  in  particular 
the  emergency  lighting  division  of  URA  Safe  and  US  company 
Ortnxucs,  speoafized  in  prewiring  hardware  for  VW  networia. 

A further  sleep  rise  in  profts  and  margins  in  (he  fir*}  half  of  the 
year  testifies  to  Legrand's  ability  to  successfully  market  its 
product  range. 

Ful  year,  assuming  no  mqcr  upheavals  in  business  or  exchange 
rates  on  tb  main  maricefc,  the  group  experts  to  report  n morked 
rise  in  profits. 


FINANCIAL  INFORMATION:  fel : (33)  7 49  72  53  53 

Internet : www.ie9tmddedric.com 


HSBC  GLOBAL  INVESTMENT  FUNDS  SICAV 

Soattf  d’Investissement  b Capital  Variable 

Registered  office:  7 rue  do  Marritf  ara  Herbes 
L-1728  LUXEMBOURG 
RC  Luxembourg  B-25087 


NOTICE 

Shareholdav  of  HSBC  Global  Investment  Foods  - Malaysian  Equity 
Sub-Fund  (ibe  “Sub-Fund")  me  hereby  informed  that  the  Board  of 
Directors  of  HSBC  Globa]  lovcsuneai  Funds  bos  decided  on  2 
September  1998  10  suspend  the  net  assn  value  calculation  and  the 
issue,  redemption  and  conversion  of  shares  of  the  Sub-Fund  in 
accordance  with  Ankle  22(a)  of  the  Ankles  of  Incorporaiioft.  whereby 
the  Board  of  Direction  may  suspend  the  oa  asset  value  calculation  and 
the  aOacatkm,  the  conversion  and  the  redemption  of  shares  "during  any 
period  when  any  market  or  stock  exchange,  which  is  the  principal 
market  or  stock  exchange  on  wiridi  a material  pan  of  toe  investments 
of  tbe  relevant  Sub- fund  for  the  time  being  arc  quoted,  is  closed 
(otherwise  than  for  onfinary  holidays),  or  during  which  dea tings  are 
substantially  restricted  or  suspended". 

The  decision  of  the  Board  was  made  in  view  of  the  changing 
diL-umaances  on  toe  Malaysian  Marita. 

Shareholders  applying  for  redemption  or  coo  version  of  their  shares  will 
receive  formal  written  notice  of  the  suspenstou.  Any  disccuonuation  of 
the  suspension  will  be  duly  publicised. 

By  order  of  tkr  Board  of  Directors. 


IBM  Ota  D M»  V Ann*  tors  mm  m.  Cte  Z23  has  tear 


=.  iy 


26 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


COMMODITIES  & AGRICULTURE 

METALS  ANALYSTS  SAY  CONSUMPTION  HAS  PROVED  RESILIENT  DESPITE  ASIAN  ECONOMIC  TURMOIL 


Link  ‘suspended’  between  demand  and  prices 


By  Kenneth  Gooding, 
NHnlng  Correspondent 


Demand  for  the  heavily 
traded  base  — alumin- 

ium. copper,  lead,  nickel,  tin 
and  zinc  - Is  holding  up 
well,  even  though  it  is  a year 
since  the  Asian  economic 
turmoil  began  to  take  its 
toll. 

This  means  the  traditional 
relationship  between 
demand  and  prices  has  been 
suspended,  points  out  Tony 
Warwick-Clung,  analyst  at 
Flemings  Global  Mining 
Group. 

“Analyst  folklore  is  that 
prices  for  soft  commodities 
are  driven  by  supply  and 


those  for  metals  by 
demand,"  he  says  in  Flem- 
ings'-Metal  Monitor. 

The  present  picture  for 
base  metals  demand,  there- 
fore, does  square  well  with 
some  of  the  lowest  prices  for 
many  years. 

He  points  out  that  in  the 
first  six  or  seven  months  of 
this  year  demand  setbacks 
for  base  metals  have  been 
“modest".  Aluminium  off- 
take Is  down  little  more  than 
2 per  cent  on  last  year,  even 
though  consumer  spending 
and  the  construction  indus- 
try have  been  badly  affected 
in  east  Asia. 

Copper  consumption  is 
actually  ahead  of  last  year 


while  lead’s  is  about  level, 
mainly  because  east  Asia  is 
far  less  important  to  lead 
than  is  the  US  or  Europe. 

Sine's  downturn  of  1-5  per 
cent  “seems  modest  in  the 
context  of  the  decimation  of 
the  construction  sector  in 
the  Far  East".  Western 
world  tin  demand  “seems  to 
have  held  up  very  well  so 
far.  reflecting  its  use  in 
recession  resistant  areas  like 
food  packaging*. 

Nickel  consumption  is 
down  less  than  I per  cent, 
although  Mr  Warwick-Ching 
says:  “This  does  belie  a sig- 
nificant downturn  in  the 
stainless  steel  sector  in  the 
second  quarter." 


Western  world  non-ferrous  metals  consumption 
Tonnes  000 


Hia  tiaif 

Fktibaif  . 

% 

1997 

1998 

cimos 

AlunMum* 

11,110 

10,885 

-zo 

Copper 

6,558 

8^71 

02 

L M 

%580 

1580 

DJD 

Metal 

470 

467 

-A7 

Tn 

96 

97 

12 

Zinc 

3,245 

3,185 

-15 

■j*ku 

Other  analysts  also 
express  concern  about  prob- 
lems for  the  stainless  steel 
industry,  by  far  the  biggest 
consumer  of  nickeL 
Alan  Williamson  and 
Andrew  Carter,  analysts  at 
Deutsche  Bank,  in  their 


Sum  CRJLMS 

Metal  Window  newsletter 
say:  “The  continued  deterio- 
ration of  the  stainless  steel 
market  and  the  need  for  pro- 
duction cuts  continue  to  cast 
a shadow  over  the  outlook 
for  primary  nickel  demand." 

However,  some  analysts 


are  more  bullish  about  cop- 
per than  they  were  at  the 
beginning  of  thfc  year. 

Bloomsbury  Minerals  Eco- 
nomics suggests  demand  for 
copper  might  increase  by  £ 
to  3 per  cent  this  year,  com- 
pared with  1997,  because  ora 
shortage  of  scrap. 

tn  its  latest  Copper  Brief- 
ing Service,  Bloomsbury 
says  copper’s  consumption 
growth  rate  has  replaced 
stock  levels  as  the  main 
driver  of  prices. 

Flemings’  Mr  Warwick- 
Ching  says  metaLs  demand 
could  fall  as  time  goes  by, 
but  it  still  has  some  way  to 
go  even  to  approach  previ- 
ous downturns,  and  is  “miles 


away  from  the  consumption 
disasters  that  followed  the 
oil  shocks  of  the  1970s,  when 
percentage  falls  in  demand 
reached  double  digits". 

He  suggests  prices  have 
been  ignoring  relatively 
good  demand,  reacting 
instead  to  two  factors.  "The 
main  focus  of  concern  has 
been  a very  bearish  ultimate 
outcome  for  the  interna- 
tional economy,  with  the 
knock-on  effects  of  the  Asian 
crisis  continuing  to  build  as 
the  months  go  by. 

“The  secondary  concern 
has  been  a surge  of  new  sup- 
ply in  several  metals.  On  the 
first  concern  the  price  ver- 
dict has  been  right  - so  far." 


Pakistan 
cotton  hit 
by  hot 
August 

By  Fartian  Bokhan  in  Mnitan 

Unusually  high  night 
temperatures  in  August 
have  hit  Pakistan's  cotton 
crop,  although  other  factors 
will  compensate  for  the  pos- 
sibility of  large  crop  damage, 
agricultural  scientists  say. 

However,  the  finding  has 
again  brought  the  country’s 
environmental  conditions 
and  their  implications  for  its 
main  crops  into  focus. 

Reports  of  temperatures 
an  average  2 degrees  Celsius 
higher  in  August,  compared 
with  last  year,  are  also  likely 
to  support  environmental 
activists,  many  of  whom  say 
not  enough  is  being  done  to 
stop  degradation. 

“In  some  ways,  the 
weather  has  been  supportive 
this  year,  but  August  has 
certainly  been  a damaging 
month  for  cotton  due  to 
higher  temperatures,"  said 
.Tehangir  Twin,  chairman  of 
the  Punjab  provincial  task 
force  on  agriculture. 

Tanveer  Ahmed  Javed,  a 
senior  scientist  at  the  coun- 


Pakistani  farmers  are  caiing  for  the  swift  Introduction  ot  fresh  cotton  varieties  that  are  resistant  to  changing  weather  comfitkms 


try’s  premier  cotton  research 
institute,  said:  “Higher  night 
temperatures  affected  some 
boll  formation  in  cotton,  but 
drier  weather  on  the  whole 
helped.  This  suggests  that 
we  are  going  through  envi- 
ronmental changes.” 

However,  no  one  can  agree 
;on  the  reasons  for  the 
unusual  temperatures  or 
what  will  happen  in  future. 

Mr  Javed  said  such 
“abnormal”  temperature 
variations  are  temporary  but 
another  scientist  warned 


that  the  weather  was  a 
long-term  problem  that 
could  hit  future  output 

In  the  early  to  mid-1990s, 
some  scientists  thought  the 
growing  environmental  haz- 
ards that  affected  crops  such 
as  cotton  were  caused  by 
fires  at  the  Kuwaiti  oil  wells 
during  the  1990  Gulf  war. 

One  suggested  a three-year 
cotton  crop  failure  from  1992 
to  1994  was  the  result  of  the 
fall-out  from  the  Gulf  war, 
which  also  affected  other 
nearby  countries. 


However,  analysts  warn 
that  the  higher  temperatures 
are  evidence  of  the  environ- 
mental breakdown  caused  by 
large-scale  deforestation, 
especially  in  the  mountain- 
ous areas  of  northern  Pakis- 
tan and  parts  of  Pakistan- 
administered  Kashmir. 

The  government  says 
about  5 per  cent  of  the  coun- 
try's soil  is  under  forests, 
although  independent  ana- 
lysts disagree.  They  also 
view  the  official  claim  that 
more  than  2bn  trees  have 


been  planted  in  the  past  10 
years  with,  scepticism. 

The  higher  temperatures 
have  prompted  demands  for 
fresh  research  into  Issues 
related  to  the  cotton  crop. 

“Many  of  the  varieties 
given  to  farmers  are  not 
resistant  to  heat,"  said  Siddi- 
que  Akbar  Bokhan,  a cotton 
farmer.  “The  government 
and  cotton  research  insti- 
tutes now  have  to  move  fast 
to  introduce  fresh  varieties 
resistant  to  changing 
weather  conditions." 


Copper  tops 
$1,700  a tonne 


MARKETS  REPORT 


By  Kenneth  Gooding,  Robert 
Corelne  and  Paid  Solman 


On  the  London  Metal 
Exchange  copper  pushed 
through  an  important  bar- 
rier at  $1,700  a tonne,  due, 
dealers  said,  to  technical 
buying  and  rumours  that  a 
supply  squeeze  would 
develop  in  November. 

A rise  of  3J500  tonnes,  or  1 
per  cent,  in  LME  copper 
stocks  to  353275  tonnes  was 
brushed  aside  and  three- 
month  copper  ended  the  day 
up  $1825  a tonne,  or  1 per 
cent,  at  S1.70&50. 

According  to  the  Interna- 
tional Copper  Study  Group's 
latest  repeat,  refined  copper 
output  rose  32  per  cent  to 
6.873m  tonnes  in  the  first 
half,  compared  with  the 
same  months  of  1997,  while 
consumption  Increased  by 
22  per  cent  to  6.784m  tonnes. 

Crude  oil  prices  remained 
range-bound  before  publica- 
tion of  the  latest  inventory 
data  from  the  US. 

Brent  Blend  for  October 
delivery  was  quoted  at  $13.11 
a barrel  in  late  trading  on 


London’s  International 
Petroleum  Exchange,  np  12 
cents  on  Tuesday's  close, 
although  the  contract  had 
slipped  to  $1225  earlier. 

Although  there  are  grow- 
ing signs  that  the  Organisa- 
tion of  Petroleum  Exporting 
Countries  is  moving  towards 
full  implementation  of 
agreed  production  cuts,  trad- 
ers said  the  mood  in  the  oQ 
markets  remained  wary. 

On  Tuesday.  Erwin 
Arrieta,  Venezuela's  energy 
minister,  said  his  country 
was  within  two  weeks  of 
being  in  frill  compliance. 
Yesterday  a Reuters  survey 
suggested  Opec  as  a whole 
had  moved  to  about  90  per 
cent  compliance  in  August, 
up  from  63  per  cent  in  July. 

White  sugar  prices  fell  to 
a lOVi-year  low  of  $218  a 
tonne  on  the  London  Inter- 
national Financial  Futures 
Exchange  after  the  Euro- 
pean Union  sold  107,300 
tonnes. 

EU  exports  stand  at 
481,050  tonnes  compared 
with  250,000  tonnes  a year 
ago.  In  late  trading,  October 
sugar  was  $219.30  against 
Tuesday's  close  of  $22220. 


Thailand 
to  cut 
rubber 
output 

By  Paul  Sotroan 

Thailand  said  yesterday  It 
would  cut  natural  rubber 
production  by  10  per  cent  to 
help  support  sagging  prices. 

The  move  by  the  world's 
largest  natural  rubber 
exporter  was  announced  at 
the  end  of  three-day  talks 
between  the  world's  leading 
producers  in  Kuala  Lumpur. 

However,  one  industry 
insider  said  Thailand's  move 
was  unlikely  to  be  effective 
unless  Malaysia  and  Indon- 
esia, the  other  top  producers, 
followed  suit. 

“Ten  per  cent  of  Thai- 
land's production  is  about 
200,000  tonnes  and  the  price 
will  move  up  a little,”  he 
said.  “But  it's  unlikely  to  be 
enough  on  its  own.” 

Rubber  prices  have  fallen 
30  per  cent  in  dollar  terms -in 
the  past  year  as  the  Aslan 
crisis  has  reduced  demand. 
This  week's  meeting  of  the 
Association  of  Natural  Rub- 
ber Producing  Countries  was 
intended  to  find  ways  to  sup- 
port the  market. 

The  organisation  includes 
Thailand,  Malaysia.  Indon- 
esia, Singapore,  Sri  Lanka. 
India,  Papua  New  Guinea 
and  Vietnam,  but  inrirwibsfa 
and  Vietnam  did  not  send 
representatives  to  the  Kuala 
Lumpur  meeting. 

In  particular,  the  associa- 
tion discussed  plans  that 
would  effectively  replace  the 
Internationa]  Natural  Rub- 
ber Organisation.  Inro  is 
responsible  for  buying  rub- 
ber stocks  to  support  prices 
but  has  been  heavily  critic- 
ised for  felling  to  act. 

Malaysia  has  said  it  will 
withdraw  from  Inro,  though 
the  cabinet  has  yet  to 
approve  the  move. 

Although  the  Kuala  Lum- 
pur meeting  was  private,  the 
rubber  producers'  intentions 
are  expected  to  emerge  in 
the  next  few  days.  Inro, 
which  includes  rubber  con- 
sumers as  well  as  producers, 
holds  its  own  meeting  next 
month. 


v,v 


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+—«*■  «• 

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• • • • * -in*. 

■ v i 
-1* 

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“va-r.  .s|- 


COMMODITIES  PRICES 


BASE  METALS 
LONDON  METAL  EXCHANGE 

IPrfcw  from  Amalgamated  Metal  Tradngi 
■ ALUMDBUM,  *9J  WHTY  (5  par  tonne) 


Precious  Metals  continued  GRAINS  AND  OIL  SEEDS 


Cab 

3 mfln 

Owe 

1364-65 

1387^88 

Piwrioco 

1390-91 

1413>MS 

Hgh/tow 

1407/1379 

am  omcH 

1370S-71S 

1395-95S 

Kerb  dm 

1383-84 

Open  M. 

294.475 

Toel  daft  turnow 

B8.775 

■ aummum  ALLOY  is  par  mraj 

doss 

1170-80 

1198-200 

Prevttws 

1188-93 

1213^6 

HtaJlfllW 

1205/1193 

AM  Offldal 

1165-75 

7195-200 

Kerb  dose 

1192-95 

Open  im. 

8.239 

Total  Half  tumwer 

1S91 

■ LEAD  (5  per  tome) 

□or 

529.5-30S 

541 .5-42X1 

Preriom 

533-4 

543-4 

HBMow 

541/539 

AM  Dffldai 

528-8S 

539-9.5 

Kali  dose 

541-2 

Open  M. 

35S41 

Total  drily  turncmv 

5X03 

■ NKXEL  IS  per  tonne) 

Ooaa 

4240-50 

4300-Q5 

Prevkrm 

4320-30 

4380-85 

MgMw 

4370/4280 

AM  mdd 

4230-40 

4305-10 

Knb  CAM* 

4250-60 

Open  m. 

61.205 

TOW  My  tumwer 

21.828 

■ TM  (S  per  mnne| 

□cm 

5480-90 

5360-65 

Pimtom 

5470-90 

5350-70 

Hkyvtw* 

53700320 

AM  Omari 

5465-70 

5340-45 

Kers  dwe 

5350-55 

(ten  ML 

14.570 

Ten  rUdy  tmw 

2.692 

■ roc,  ipadri  Mgb  grade  (S  per  tome) 

Oce* 

1016-19 

1041-42 

Prwtan 

1CC0-24 

1040-47 

WgWovi 

1043/1033 

AM  OlUd 

1013.5-14 

1037-37.5 

Kerb  dose 

7039-40 

Open  *'• 

85JS74 

Total  03t|  tumwer 

16.649 

■ COPPER,  grades  (5 per  lonnw 

Ctoee 

169546 

1717-18 

Prevftxa 

16875-68S 

1706-09 

MgMmr 

1718/1677 

AM  omdai 

1 b/6-// 

1698-09 

Kerb  ooaa 

1708-09 

Open  kit 

167.577 

Toe)  dafty  arrows 

saooo 

■ LME  AM  Offldri  E»  rata;  18847 

LME  Oaring  E/S  rate  1S839 

■ 600  craex  poo  Troy  CC.;  Vtrpy  «.) 

Soft  Day**  0pm 

prim  draage  H*  tow  VM  tot 

Sw  284.4  -1.7  - 

Oct  285.1  -12  2862  284.0  6Z0  10.768 

Dm  287.4  -1.8  2904  286.3  22235  106k 

Feb  289.1  -18  291.3  288.0  737  14^15 

Apr  2908  +A2  291.4  2900  120  11,313 

Jon  2928  -18  2915  292.0  33  14,994 

TOM  24807197890 

■ PtATHUM  NYMEX  (50  Troj  DL;  Stay  o£J 


Oct 

359.7 

-IS  361.0  356-0 

1224 

9550 

*m 

38 12 

-12  360.4  357S 

299 

1268 

Apr 

XU 

-12  3622  3822 

21 

41 

Jd 

3832 

-12 

2 

18 

TOM 

1224  11,277 

■ PALLADIUM  NYMEX  {100  Day  at;  Stay  at) 

SMI 

285.45 

+3.25  286XW  282.00 

37 

144 

Dm 

281.05 

+325  282.00  277.00 

151 

2213 

Mar 

279  45 

+325 

300 

325 

Total 

T8B  11277 

■ sun  cote  cxno  Tw  tt  DMtritroy  m 

4892 

+32  4810  4822 

37 

137 

Dm 

495.0 

+3.7  4982  4852  11.001  57200 

Jan 

496J 

+3.7  5062  5082 

1 

40 

Mar 

498.7 

+17  5022  4902 

425 

9212 

May 

500.8 

+3.7  5032  4942 

4 

1.727 

Jri 

6022 

+17  5102  5002 

15 

2.574 

Tetri 


11,490  79854 


ENERGY 

M OtODE  OB.  WYMEX  1 1,000  bank  Stand) 


Oct 


Feb 


fair1* 
prim  cbange  Wgb 
14J7  *0  08  14.49 
1488  *0.05  1489 
14.78  +0.03  1489 
15.02  +004  1586 
15.18 

15.41  +086 


15.19 

15.41 


Trial 

■ enuoo  OIL  PE  (StarrsO 


Lon  Vd  M 
14.11  4I.B19  95.865 
1485  15838  54,492 
14.60  9.182  71940 
14.82  5.178  39839 
1585  1.275  19852 
1584  5.748  16.811 
7728481,417 


em 

Day** 

OpM 

pries  diwup  INqN 

Low 

Vri  u 

Oct 

13.03 

+024 

13.10 

1223  21269  57.070 

Nov 

1133 

+027 

13.41 

till  12260  41,760 

Dm 

1320 

+0.09 

1329 

1138 

3238  44J44 

Jm 

1320 

♦014 

1160 

1323 

2228  31,604 

Fab 

1177 

-0.04 

13.77 

1329 

1.048  10207 

Mar 

13.93 

-003 

1193 

1321 

700  11.035 

Tetri 

■fa  n/a 

■ HEATING  OIL  NYI4EX(4£«0  US  safe  OUS  «rib) 

LetMt  Baft 

Opm 

pric*  ctanga  High 

Low 

vm  lot 

Oct 

39.15 

+054 

3920 

38  40  15.040  44,744 

NO* 

4025 

+029 

4020 

3925 

5.545  21229 

Dm 

41.55 

*029 

41.90 

4025 

1242  24,283 

Jm 

42.75 

+229 

4220 

4220 

772  24.038 

tigb 

43.70 

+0.39 

43.70 

4100 

206  1 7.644 

Mar 

4425 

+024 

4425 

43.45 

- 16.015 

Spot  18815  3 nfe  18541  6rrf*  18464  9 nh  16399 


■ «6H  SHADE  COPPHt  [CQUBQ 

Sett  Du's  Open 

prim  change  W U*  W M 

Sep  78.10  +085  78.10  76.10  681  5870 

Oct  7785  +0.85  7780  76.00  356  2843 

Nor  78.05  *090  7U0  7630  TB  1,636 

Dec  78.15  +080  7830  76.15  11.497  29.494 

JM  7830  *085  75,70  7850  71  2892 

Ft*  7840  +085  77.55  772S  15  1,121 

Total  12899  00867 

PRECIOUS  METALS 

■ UMDON  BULLION  MAMET 

fPncct  °r  N m ftoawcflftl) 

fioWroy  oz} 

Dot* 

Ope** 

Morning  & 

Afternoon  fit 
Day's  Won 
Day's  Low 
PiwAoua  due 
Loco  Libi  Mean 

1 monm  ■■ 

2 monte  

3 months 

Star  R* 

Spot 

Star  Lending 

1 month 

2 monos  — 

3 monte 


Total 


■ gas  on.  pe  (Sriome) 


28501180912 


Od 


no 

Total 


Sett  Dayt 
prim  change  Hjp 

11525  +180  11825 
11800  +075  12000 
12800  +0.50  12250 
124.75  +0.73  12585 
12780  *025  12780 
13025  -050  12850 


low 

1112S 

117.00 

12000 

1Z3.00 

12000 

12000 


Open 
Vri  tan 
8,843  10.471 
11.209  31672 
1.795  19XJ49 
2846  41,411 
1882  18,284 
432  13,134 
28,000170899 


■ HATWtALnASPEllJlBBiffwpre 

Oct  12840  -0J40  12850  12800  405  3,770 

Nov  14.110  -8290  14350  14800  260  2875 
Total  1,460  25,575 

■ NATURAL  OAS  HVWEX  (10,000  mrOtiL;  SftnmBta.) 


5 pfee 

£ cquhr 

SFr  eqriv 

Latest  Oay'e 

Opu 

2S4JD-28U0 

pries  ctiBBjs  High 

Law 

Vri  lot 

28420-21520 

Oct 

1240-1034 

1225 

1.780  28.990  57.014 

284.15 

171281 

401919 

Nw 

1090  -0222 

2.152 

2215  12217  34.168 

283.45 

17D.B56 

4U2.499 

0«C 

2230-0228 

zm 

2270 

7.787  31849 

285.10-0550 

Jm 

2.425-0X530 

2.485 

2370 

4216  31225 

283.W-283.40 

Pab 

2.360  -0X133 

2/419 

2235 

1.788  19,311 

2C704S&20 

Hot 

2J80-OXB3 

2-310 

2240 

1233  16.743 

BoM  Uoring  Rate  (V#  IBS} 

Total 

61201281216 

_5  03  s monte 

4XM 

..am  12  nantte 

220 

■ UNLEADED  GASOLINE 

..Mi 
pflpjy  or. 
29287 

Rites 

8.80  6 months 


US  eta  equfr- 
48580 


NYMEX  (42.000  US  OHfcx  c/US  gate) 


,..,-380  12  mo**. 

tun 


-2.10 

-280 


SoU  Cab* 
t&ugerrand 
New  Sotenrign 


S price  Eoariv. 

287-291  173-175 

88-72  «■« 


Lrint 

w» 

Open 

pttea 

ebanga 

Hgh 

law 

vm 

bn 

Oct 

4125 

+0.19 

4200 

4020 

11359 

40220 

Nor 

4220 

+0.11 

4260 

41.70 

5.198 

11380 

Dec 

4320 

+0.43 

4328 

4220 

1.128 

9273 

Jan 

44JJ0 

♦0X0 

44J» 

4320 

117 

4,192 

Fab 

4420 

+0XJB 

- 

_ 

87 

1236 

Mar 

4527 

- 

- 

- 

If 

1.752 

Totri 

19250 

83211 

’ W8€AT  LFFE  (100  tomes;  B.  pm  tome) 

Sett  Baft  0pm 

film  dung*  Ugh  line  VM  lit 


SOFTS 

■ COCOA  um  {10  tmnee;  Enomel  

Salt  Da yl  Open 

prim  draga  Mgb  Law  Vri  M 


ftp 

7220 

+825  7220  72.00 

41 

182 

ftp 

1034 

-1 

1031 

1030 

58  110 

Od 

Mi* 

7325 

+0J»  74.00  7130 

168 

2293 

Dec 

1074 

-1 

1082 

1068  3,687  66.135 

DM 

Jan 

7520 

+0.10  7520  7520 

83 

2271 

Mar 

1103 

+1 

1110 

1037  2204  41248 

Fab 

Mar 

7720 

+0.15  7725  7020 

74 

1/450 

m«t 

1120 

+1 

1127 

1115 

324  14.853 

Apr 

May 

7820 

+0.10  79JM  7820 

35 

1.142 

Jul 

1138 

+2 

1145 

1135 

480  8297 

Jm 

Trial 

401 

8295 

Spp 

1156 

+2 

1152 

1150 

600  27.053 

Ang 

■ WHEAT  CUT  (SXUObu  mh  cara/BOb  budKl) 

Total 

8201187254 

Totri 

Sn 

245.00 

-SIM  PSD m 74491 

3R37 

7497 

■ COCOA  CSCE  (10  tomes;  S/tomes) 

M LB 

Dm 

26025 

-5.00  2G6XM  250.00  13.100  77.181 

ftp 

1569 

+8 

1579 

1560 

11  989 

Oct 

Mar 

275.75 

-525  28120  275XW 

3.138  21896 

Dm 

1599 

+6 

1612 

1587  2289  38.194 

DM 

M*y 

288-00 

-4.75  290JM  28520 

• 68 

4271 

Mar 

1641 

+5 

1852 

1830 

440  18.138 

Fib 

Jri 

298X10 

-5XJ0  300.00  29320 

498  11057 

May 

1689 

+7 

1679 

1668 

352  5243 

Apr 

S*P 

30320 

-5.50  30420  304.00 

20 

332 

Jot 

1696 

+8 

1891 

1691 

35  1203 

Jim 

Totri 

20,480  111718 

Sap 

1722 

+8 

- 

- 

- 1.681 

Jri 

MEAT  AND  LIVESTOCK 

■ LIVE  CATTLECNE  (40J0QQW;  canMba) 

Sett  Day*! 

Price  dung*  Ugh 
58850  - 59.100 

61.600+0200  61850 
62025+0.100  62.150 
63275  - 63850 

61850-0.150  61850 
01825-0.175  61825 


■ MAIZE  CBT  (5800  hi  m centa/56to  Mali 

Sap  19BJ0  -1.75  20080  195.75  4828  7,643 

Dec  210.75  -225  21380  20885  44,746161351 
Mm  223.23  -280  22580  220.75  5,023  58.729 

Kay  23080  -280  232.75  22880  1.780  21894 

Jri  236.75  -1.75  23875  234.00  1,717  29814 

Sap  24230  -330  24585  24130  31  4.723 

Total  60801 318404 

■ BARLEY  UFFE  000  tomes  £ per  tome) 


Sep 

TUB 

- 6820  6820 

7 

6 

Nor 

72.00 

-075  7220  72.00 

15 

925 

Jan 

74XB 

-075  7420  7420 

10 

396 

Mar 

75.75 

-075  7GX»  76.00 

- 

60 

■fay 

7HJ5 

-075  77 XX)  77X» 

- 

23 

Total 

34 

1>*)4 

M SOYABEANS  CBT  (SJDDbu  min;  cansriSOto  DudraQ 

Sag 

521.00 

-5.00  52820  51920 

663 

3261 

NOV 

517XB 

-575  524.00  51820  20,865  89,165 

Jan 

52725 

-4.75  533X10  52620 

1221 

22735 

Mar 

53775 

-520  544 XX)  537.00 

1X»1 

18238 

May 

547X10 

-500  55320  547X10 

334 

7.129 

Jri 

557.00 

-520  563JJD  55675 

470 

8783 

Total 


E3301518U 


■ SOYABEAN  08  CBT  1608m*:  mntaflb) 


Sap 

24.15 

-072 

24.45 

2428 

3,380 

2,878 

Oct 

2477 

-021 

24.47 

2475 

3,172  28.071 

Dae 

24.54 

-0.12 

2470 

24.46 

9.456  48.531 

J*n 

24  60 

-0.15 

247S 

2424 

948 

8212 

Mar 

2422 

-0.18 

2420 

2426 

1,033  11734 

May 

2427 

-070 

2424 

2420 

138 

4213 

Tiitri 

18754  110252 

M SOYABEAN  MEAL  COT  (100  tons  Stas 

ftp 

1322 

-1.4 

1342 

132.1 

2,354 

6554 

Od 

1297 

-02 

1302 

128.9 

3,854  25213 

Doc 

131.4 

-1.1 

1332 

1312 

6599  84.182 

Jm 

1333 

-13 

135.4 

133.1 

516 

14,188 

Mar 

137.4 

-1.0 

139.4 

137.0 

754  12,622 

M«y 

1412 

-12 

1437 

1412 

568 

6592 

Trial 

15221  138.197 

M POTATOES  LFFE  (20  Barnes:  E per  tonne) 

No* 

80.0 

_ 

« 

_ 

3 

MV 

118.5 

- 

- 

- 

_ 

Apr 

164.0 

-3.4 

1642 

163.D 

18 

2770 

M»y 

1742 

-2A 

- 

— 

- 

29 

Jim 

1042 

-14 

- 

- 

- 

- 

Total 

18 

2770 

M ffiBGHr  (BtfFEQ  UFFE  (SI  OAfldm  print) 

Sap 

830 

-30 

820 

830 

37 

160 

Od 

915 

-10 

910 

900 

3S 

500 

Jn 

955 

-IB 

955 

955 

- 

391 

Apr 

990 

- 

- 

- 

- 

201 

Jri 

875 

- 

- 

- 

- 

200 

Trial 

Cion 

Prtv 

67 

1587 

BH 

838 

833 

PULP  AND  PAPER 

■ WEX0HLX(USl-2lafrdryare) 

Sen  Day's  Open 

price  change  Ugh  Low  Vri  tat 

Deo  43225  -3.75  43225  43225  5 382 

Mar  46125  -280  4812S  48125  5 72 

TOtM  10  684 

nmmpt  rurs 

At  toes  dab  anted  Of  CMS. 


Nuts  and  seeds  Price*  from  Kankvo 
London  S per  m/L  Iranian  ptatachfo*  28/ 
30  raw  (In  shell)  naturally  opened  (round): 
wop  1B97  at  83,100  FCA  or  CFR  from  Iran. 
Slow  sales  before  new  crop.  Turkish 
hnrimts  13/15  aid  11/13.  far  new  crop 
Incflcadon  S3JKO  CFR.  Indian  carirawa 
Crop  1998  CfR  from  Top  suppers,  W32Q  dt 
55,750,  W240  » $7,150.  US  almonds 
standard  5 par  cant  crop  1986  a $4800. 
Turkish  apricots  new  crop  avaSabte.  Size 
1 at  S2850.  size  2 st  S2200.  size  4 at 
SZ^tOQ.  Turkish  sultana*  type  9,  special 
dean  FOB.  crop  97  at  S1.100.  crop  96  m 
Si  .075.  US  sunflower  made  marks!  at 
S795  tor  second-hand  floods. 


Tetri 

■ COCOA  (EGO)  (SORrikmi 


3820  71 »7 


38350+0875 
38350+0350 
43800+0300 
46325+0850 
54300+0800 
55825+0.475 

Total 

■ niKBBLSSCME 


39200  38200  2.7B0 
39.100  38.100  2.439 
43JD0  42800  552 
46800  45800  167 
54891  54.400  29 

58800  55800  33 

B84S 

(40, goons:  write 


Sap  8 

Daily  - 


1285.47 

H COFFEE  LITE  (5  kernes  S/toma) 


Piw.  day 

n/a 


Sep 

1702 

-3 

1726 

1701 

319 

2543 

Nor 

1672 

-10 

1703 

1672  4.460  19.067 

Jan 

1622 

-10 

1651 

1625 

651 

5,115 

Mar 

1594 

-11 

1622 

1595 

BO 

2584 

May 

1578 

-12 

1605 

1593 

46 

495 

Jut 

1573 

-12 

1585 

1585 

30 

171 

Trial 

5536  30275 

M COFFEE  lC  CSCE  (375000b;  COIBSM) 

ftP 

11950 

-255  12350  119  XXI 

99 

953 

Dec 

113.0Q 

-25S  118.50  112.05  6.141  14528 

year 

11050 

-250  11350  110XH 

693 

6.328 

Mar 

11170 

-a«  11350  111.00 

84 

2548 

Jri 

11120 

-2.40  11350  11155 

48 

1785 

Sap 

112.75 

-250  113.75  11255 

13 

1.446 

Totri 

7 m 27531 

■ COFFEE  (CO)  IUS  canerpounffl 

Sep  8 
Oomtutaiy , 


. 101.14 
-9936 


15  day  enrage 
■ WHITE  SUGAR  UffE  {50  toms  Stony 


(Jet  220.4  -18  2228  2172  4359  13872 

Dec  2228  -1.7  2223  2198  2830  10394 

Mar  2288  -1.1  2288  2258  878  14322 

■ta  2338  -18  mi  2328  99  2867 

tag  2898  -18  2398  2398  - 1,445 

Oct  241.8  -04  2478  2478  1 1,110 

TOM  8712  43846 

■ SUGAR  If  CSCE  (112,0008*  cans«B) 


Od 

771 

-ai4 

755 

7.1312551  67,980 

Hr 

7.74 

-0.11 

753 

727  7201  58504 

May 

753 

-0.12 

7.98 

750  1504  9,198 

Jul 

8.03 

-OXB 

8X5 

759  218  7.173 

Oct 

875 

-0X17 

852 

8X5  78  9.034 

Total 

22,166157598 

M COTTON  NYCE  (SOXXWBb;  corisflbe) 

Ori 

7350 

-057 

7375 

73.16  657  4.139 

Dec 

74.42 

-041 

7475 

74.15  6573  35559 

Mar 

74.01 

-044 

74.15 

7370  1552  185<5 

May 

74.00 

-0.40 

7470 

7325  411  10.1ZT 

Jri 

7425 

-aia 

74.75 

7425  272  6581 

Tetri 


8888  84811 


■ ORANGE  JUKE  HYCE  (TSJOOB*  caMbt) 

Sep  115.70  -0.7511680  11540  156  340 

11685  -185  11&80  116J5  1,313  18878 
71980  -125  120.75  11980  766  6253 
Mar  122.40  -180  12380  12280  51  2850 

May  12430  -1.00  12580  12480  58  725 

JDI  127.15  -080  12780  12780  20  349 

Total  3,480  mjaar 


VOLUtlKDAYA 

Open  ntaraat  aid  Votoma  Data  ttrowi  lor  conraea 
saded  on  C0MEX,  NYMEX  CUT.  NYCE,  CUE,  CSCE 
and  n Crude  oa  n one  day  la  arrears.  Vohme  a 
Open  Maras  ntsh  are  tar  at  Dated  monfta. 


INDICES 

■ teuton  (Base:  TB/S/31  = ion 

Sep  9 Sep  8 andb  ano 

1502.7  14992  1535.1 

ysarap 

10345 

■ OB  Mum  (Base  1967  = 1001 

Sep  0 Sep  7 uMbago 

20222  20129 

H BSC!  spot  IBaaK  1970  = 10a) 

yaarago 

Saps  S*j 7 narib  age 
14381  14239  14182 

LME  lUnsnBE  STOCKS  (tames) 
Ahawfcm 
Mnwen  a saj 
C «W 
Lead 
McM 
21k 
He 


ymraga 

19485 


+4500 

to 

455275 

+480 

to 

73520 

+3X5SO 

to 

349.425 

-150 

to 

I135TS 

-38 

nr 

5BJE2 

♦475 

u 

366,725 

-86 

ID 

7575 

Feb 


TaW 


47X125  +2225  47.700  45550 

era 

2.482 

47250+2550  47200  45.400 

32 

128 

49200+3.000  47.750  47700 

8 

15 

004 

2538 

LONDON  TRADED  OPTIONS 

Strike  prim  S trnaw  — Celt—  — Pete  — 


■ ALUHMUM 


Pm.  day 

n/a 

n/a 


(99.7%)  LME 

0d  Jan 

Da  Jan 

1350 

. 44  B4 

18  32 

)^H) 

. 20  58 

44  54 

1450. 

. 7 38 

81  82 

m cwtoi 

(Grade  Aj  LME 

Ori  Jan 

Ori  Jan 

1600 

. 128  162 

8 35 

1700 

. 56  101 

36  72 

1800 

. 18  58 

87  128 

M COfflEE  UFFE 

Sap  Nov 

Sep  Nor 

1600 

. 31  93 

1 21 

1650  . 

. 1 63 

21  41 

1700 

. 1 40 

70  68 

M COCOA  UFFE 

Sep  Dec 

Sep  . Dec 

1IBS 

25  64 

1 15 

1060 

. 4 48 

4 24 

1075 

1 38 

25  37 

h BnerrcsonEPE 

Ori  HW 

oa  Nor 

1300 

18 

28 

1350 

4 36 

_ 

1400 

23 

- 

LONDON  SPOT  MARKETS 

M C8UDE  DU.  FOB  (per  berreQ 

+or- 

Dubai 

SI 230-221* 

•0.105 

Bmn  Sana  (datod) 

SI 2+47-222 

+-DXI2S 

Brent  Blend  fpet) 

SI  3X17-3.12 

+0225 

W.TJ. 

S13XM-3X)6x 

-0X290 

■ cafWlllllinSWffipna^itelwyCFItot^ 

Pren**n  Gesulne 

SI  45-149 

-12 

Go  on 

S1 19-120 

+02 

Heavy  Rid  oa 

558-60 

+02 

Hapmna 

S114-11B 

+12 

Jet  tel 

SI  35-136 

+T 

Dosri 

Si 28-130 

+1 

M KA7URAL  GAS  (PBxsflhann) 

Bactm  (Od) 

1228-1228 

-029 

noMem  April  m um 0 mm  as  be 

MOTHER 

Goto  (par  tray  M)4 

$28425 

-2X» 

Shergw&oy 

49620c 

. +000 

Hatkiim  (per  tray  ozj 

S368JX) 

+&D0 

PaMum  (par  tray  taj 

$28820 

+1120 

Copper 

81.0c 

Lead  (US  pradJ 

45.00c 

Tin  (Kuala  Uunpur) 

23.13T 

T&i  (New  York] 

' 2SS.5 

Canto  (ft»  torigw 

80,13p 

-423- 

Shsap  (he  wright) 

79.14p 

-320* 

Pigs  (he  rrdghQt 

3827p 

-220* 

L on  day  sugar  (rw) 

*17920 

■m 

Lm  oay  augar  twta) 

5224.70 

-8.70 

Barter  Eng.  load 

Unq 

Mate  (US  No3  YBtoa) 

rioexn 

Wreat  (US  Dark  Nonto 

Unq 

RuWrer  (0ci)V 

47.oop 

+020 

Rubber  (Mn)V 

4720p 

4050 

flutter  (KLRSSNoi) 

255X»m 

+220 

Coctnfl  M (PfilS 

845.0y 

-100 

Pakn  01  (MabyjS 

6802 

-22 

Copra 

S413X)y 

Soyrimn  (US) 

T492y 

Colton  OuflodfA' lata 

87.40 

Wodtops  (64a  S<4W) 

300p 

EiwwwtaimMmjtdripmaneicmab  rwtH 
ItniiMpncmsttrAivap  « ap.  tpUMn  psndL  ( CF 
tawei.  f brio*  ■*  cue.  ’ Dsim  on  waft.  m 

1,<C  kM  tf  Mp  Ml 


CROSSWORD 

No  .9,78 3 ’Set  ‘ byGALAPAGOS 


ACROSS 

1 Promise  secretary  leading 
part  (6) 

4 Perverted  seaman  found 
with  two  short  men  (8] 

9 Smuggled  policemen  off  (6) 

10  Fancy  net  decoration  is 
attractive  (8.) 

11  Jesus  lacks  one  quality  (6) 

12  Saying  little  about  it, 
return  money  (8) 

IS  Make  a mess  of  return 
drive  (3) 

14  Stumble  at  last  on  river 
creature  (6) 

17  Share  right  to  include  very 
quiet  physicist  (7) 

21  Make  good  progress  in  the 
Forth  River  (6) 

25  Animal,  losing  leader,  hung 
back  (3) 

26  Throw  Ron  out,  the  weed! 
(8) 

27  Greek  city,  the  heart  of  the 
country  (6) 

28  Prepare  meals  with  red 
fish,  sort  of  (8) 

29  Coin  of  the  realm  with 
royal  head  (6) 

30  Worried  about  trifles,  per- 
haps (8) 

31  Sorted  out  and  put  away  (6) 

DOWN 

1 A repast  I set  out  for 
unwelcome  guest  (8) 

2 Restore  love  in  veteran's 
reunion  (8) 

3 Conserving  energy?  Use 
Idler  swttch  (g> 

5 Catch  up  with  new  mon- 
arch’s ensign  (6) 


*■  *'+  ^ 


m 


*-*— . - . **.<*.. 


Cto, 


h. 


* f»: 


—T 


4 


3 


V 


‘3 


. 4> 


-1 


6 Beginning  scripture  lesson, 
drink  nothing  first  (6} 

7 Sent  servant  to  let  the 
French  in  (6) 

8 Sets  down  beheading 
offences  (6) 

12  Make  a fhss  about  a mem- 
ber  standing  up  <7) 

16  Deer  travel  backwards,  we 
hear  (3) 

16  Its  a nuisance  losing  sec- 
ond favourite  (3) 

18  Cook  the  roast  in  electrical 
contraption  (8) 

19  Evil  nun  is  without  home 
(8) 

20  Having  limited  room  for 
manoeuvre.  Edward 
accepts  another  place  (8) 

22  Island  administrator  (6) 

23  Prepare  first  reading  book 
C6) 

24  Pull  back  when  about  to 
make  presentations  (6) 

25  Lowly  bodyguard  is  serious 
about  sweetheart  (6) 

Solution  9,782 


V> 


V 


:% 


+ - * 


•* 


V, 

? *,V 


(y  IJSjQ 

financial  times 

THURSDAY  SEPTEMBER  10  1998 

★ 

LONDON  SHARE  SERVICE 

trraawvESTOBiT  trusts 

WQU  . Carihnad 

ill 


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mujtinatiCm 

BCHT«inNojp*.. 


Internet  access  to  vour  account. 


Use  the  UKfc  first  Internet  trading  site  to  manage  your  portfolio. 
Call  0870  601  8888  for  an  information  pack,  quoting  F1308. 


M toss  fir 

f«l  1, 

- 1 


Charles  Schwab 

Helping  Investors  Help  ThemselVes® 
www_schwab-worldwide.com/eurupe 

1UUED  !Y  CHAIL  E4  SCHWA!  CUU1PC.  WHICH  IS  * Ml  MM  a r IRU  HF  THI  l ON  DON  STUCK  r\CHANCC  AND  uric. 
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32 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


LONDON  STOCK  EXCHANGE 


Small  stocks  grab  the  limelight  as  leaders  suffer 


FISEAft-Shue  Index 


MARKET  REPORT 


By  Stave  Thompson, 

UK  Stock  Market  Editor 


London's  equity  market 
continued  to  struggle  yester- 
day with  the  leading  stocks 
never  really  able  to  make 
much  headway  against  a 
background  of  persistent 
worries  about  the  impact  of 
the  Russian  political  and 

fjnwnm'al  crises. 

But  the  second-liners  and 
small-caps  managed  to  cling 
on  to  relatively  modest 
gains,  with  some  dealers 
reporting  a switch  oat  of  the 
front-line  issues  into  the 


smaller  stocks,  which  some 
felt  offered  better  value. 

The  shift  of  support  from 
the  leaden  to  the  small-caps 
came  as  no  surprise  to  some 
brokers.  Richard  Grossman 
at  stockbroker  Redmayne 
Bentley  said:  "Clients  are 
happier  to  be  buying  the 
smaller  companies  on  the 
basis  that  the  next  shift  in 
domestic  interest  rates  is 
likely  to  be  down  rather 
than  up  with  all  the  obvious 
benefits.” 

He  said  the  leaders  would 
continue  to  be  affected  by 
the  impact  of  international 
problems  affecting  emerging 
markets,  including  Russia. 


There  were  also  hints  yes- 
terday of  more  switching 
from  equities  to  bonds,  the 
so-called  “flight  to  safety", 
which  has  been  a feature  of 
global  markets  since  the 
Russian  crisis  first  blew  up. 

Any  further  evidence  that 
the  emerging  market  mal- 
aise has  severely  infected 
Latin  America  is  expected  to 
cause  further  problems  for 
Wall  Street 

There  were  no  such  fears 
on  Wall  Street  on  Tuesday, 
however,  when  the  Dow 
Jones  Industrial  Average 
posted  its  biggest  ever  points 
gain  in  a single  session, 
regaining  the  8.000  level  in 


doing  so.  But  Wall  Street  ran 
into  plenty  of  selling  squalls 
yesterday,  posting  a three- 
figure  decline  not  long  after 
London  closed. 

The  FTSE  100  index  fell 
sharply  at  the  start  of  the 
session,  burdened  by  weak- 
ness in  the  far  eastern  mar- 
kets where  Hong  Kong 
dropped  3.5  per  cent  and 
Tokyo  around  1 per  cent. 
The  latter  drop  came  before 
the  surprise  reduction  In 
short-term  interest  rates  by 
the  Japanese  authorities. 

And  there  were  wide- 
spread hopes  across  markets 
that  the  move  by  the  Japa- 
nese authorities  could  be  the 


first  of  an  orchestrated 
series  of  Interest  rate  cuts 
across  global  economies, 
continuing,  so  the  story 
went  at  the  time,  with  a 
reduction  in  UK  Interest 
rates. 

But  the  hopes  of  a UK 
reduction  did  not  last  long, 
with  the  FTSE  100,  which 
fofi  87  points,  rallying  to  post 
a 16-point  gain  before  dip- 
ping back,  rallying  In  the 
early  afternoon  and  then 
slipping  off  again. 

At  the  close,  the  index  was 
32.9  lower  at  5,311.3.  having 
swung  In  a 120.7-point  arc. 

The  FTSE  250  index  settled 
11  ahead  at  4£11.7,  well  off 


Its  best  level  of  the  day  of 
4322.6.  but  a good  perfor- 
mance nevertheless.  The 
FTSE  SmallCap  finished  10.6 
higher  at  2,1123,  having  hit 
a session  high  of  2,1123. 

The  expected  bid  by 
BSkyB  for  Manchester 
United,  regarded  by  many 
people  as  Britain's  premier 
football  dub,  duly  appeared, 
but  the  stock  price  did  not 
match  the  bid  level  as  mar- 
ket operators  feared  a refer 
ence  to  the  Monopolies  and 
Mergers  Commission. 

Turnover  in  equities  was 
885m  shares,  of  which  58  per 
cent  was  In  non-Footsie 
Stocks. 


iiiiiwulftrtlu — m ■ 


mt1  'i,?r 


Jut  1998 ; 
MwarWgtefc— wtflMfc 


Sep 


M 


1988 


Indices  and  ratios 

FIS  100 
FTSE  250 
FIS  350 
FTSEAKtsn 
FfS  Af-Shm  jtaU 


3311-3  -329 

4811.7  *72 

2541.9  -123 

2484.60  -1061 

120  118 


Best  perforating  sectors 

1 Brunette  Pub*  a flat  — ... 

2 Support  Senton — 

3 Totweeo 

4 Eftgtowrtag.  UeWdre 

5 Paper.  Pdq  & Printing 


..-+2.5 
_*2 2 
...♦2.1 
._+1j5 
.-+17 


FT  30 

FTSlM-flmpfe 
FTSE  KM  Fut  S#p 
lOyrSRyUM 

Worst  performing 

1 Other  financtel 


BiAftgMuftt  Untie. 

Inna, 


3334^  -2U- 

M|Q  often 

WM  -3U 
US  M. 
1J#' 

i 

.-17 


IJ7 


2 

3 

a Ttiacnmanfatine 
5 CMticte 


-—1.7 ' 

»-i3‘ 

.-u 

—13' 


Lucas  to 
relocate 
to  US 

COME  vNIES  REPORT 

By  Joel  KJbazo  and  Martbi  Brice 

Hard-nosed  analysts,  not 
known  for  their  sentimental- 
ity, were  both  angry  and 
saddened  by  tbe  news  that 
one  of  the  market's  long 
standing  constituents  will 
soon  relinquish  its  primary 
London  listing. 

Anglo-US  group  Lucas- 
Verity  said  it  proposed  to 
change  its  domicile  to  the 
United  States  by  the  end  of 
this  year,  confirming  fears  of 
a move  first  raised  shortly 
after  the  merger  of  Lucas 
Industries  and  Varity  Corpo- 
ration in  1996.  The  group 
sought  to  allay  such  fears 
early  last  year. 

As  Lucas  Industries,  the 
company  replaced  British 
Leyland  Motors  in  the  FTSE 
30  Share  index  in  April  1975. 
and  one  tear-stained  special- 
ist emerging  from  a tense 
analysts’  meeting  with  the 
company  said  simply:  “It’s 
the  end  of  an  era  and  it’s 
very  sad.  We  feared  this  may 
happen,  but  not  so  quickly." 

Another  engineering  spe- 
cialist said:  “Lord  Simpson 
[former  chief  executive)  who 
negotiated  this  merger  at  no 
premium  has  a lot  to  answer 
for.  It  has  turned  out  to  be  a 
reverse  takeover  and  now 
that  the  Americans  are 
homesick  they  have  decided 


to  go  home.  Their  crowning 
glory  will  be  the  removal  of 
the  Lucas  name  for  the  com- 
pany to  become  Varity  Inc." 

News  of  the  change  to  the 
company's  listing  came  as 
the  group  announced  sec- 
ond-quarter figures  in  line 
with  analysts’  expectations. 
LucasVarlty  also  announced 
plans  to  repurchase  up  to  20 
per  cent  of  its  own  shares 
over  an  18-month  period. 

The  stock  bad  a volatile 
session  yesterday.  The 
announcement  of  the  move 
to  the  US  saw  the  shares  fall 
to  the  day’s  low  of  190p  as 
UK  funds  haled  out. 

A closer  look  at  the  fig- 
ures. however,  along  with 


vague  hid  talk,  prompted  a 
recovery  that  helped  the 
shares  dose  2Vi  up  at  210‘Ap. 

Turnover  of  31m  made  it 
the  day’s  busiest  stock.  Deal- 
ers reported  US  interest  as 
the  session  drew  to  a dose. 

Confirmation  by  Manches- 
ter United  that  it  had  agreed 
a £623 .5m  recommended  hid 
from  satellite  broadcaster 
BSkyB  saw  shares  in  the 
football  club  appreciate  15‘/* 
to  215’/xp,  or  8 per  cent. 

Although  a counterbid 
could  not  he  ruled  out,  ana- 
lysts said  it  was  increasingly 
unlikely.  One  said:  “It  would 
be  very  difficult  for  a rival  to 
come  In  at  this  stage  given 
the  backing  that  BSkyB 


1 FT  30  INDEX  S 

Sep  9 

Sep  8 

Sep  7 

Sep  4 

Sep  3 

Yr  ago 

KflD 

lor 

FT  30 

33342! 

336023 

33806 

32841 

3280.7 

3143.0 

380*4 

33003 

OnL  «r.  yield 

3.20 

119 

2.18 

317 

329 

3.59 

*J2 

172 

P/E  ndSo  CH 

2092 

21 2M 

21.09 

2051 

2038 

2040 

2841 

15.80 

P/E  ratio  nl 

20S3 

2055 

2T.01 

2042 

2911 

2021 

25.18 

1071 

FTMreca  cawaarere 

up  araj  mom  aw  et4  vmuo.  ere 

■ Daw  uitu. 

FT  30  (warty  c/wnpea 

9 10 

11 

12 

13 

14 

18 

10 

Hgh 

low 

33806  3324.1 

3358.7 

3347 A 

3357.4 

3349.6 

33609 

33305 

33749 

33003 

O F1SE  IMM  [MM  18U.  M rtgn  mn 1 for  TOO. 


1 STOCK  MARKET  TRADING 

DATA 

1 

Sep  9 

Sep  8 

Sep  7 

Sep  4 

S*3 

Yr  ago 

S&Obngtes 

50280 

60357 

54.010 

50269 

57.7t» 

39.399 

Etpdty  tummer  (Erelf 

Z77Z5 

20004 

23405 

27292 

2098.7 

Eqtity  targainst 

41.178 

40363 

3JL945 

42396 

37,583 

Stone  traded  (mtt 

346.4 

718.8 

762.7 

6953 

6533 

Total  motet  barptimt 

50429 

54976 

51^70 

59.063 

■ 

Toed  know  (£m)t 

3731.1 

35249 

ww  n 

40203 

- 

Total  tea  traded  |m)t 

•8859 

1001.1 

92&e 

10093 

963.7 

- 

Ttedapaim  tunonr  (Em) 

323 

20.3 

24.4 

253 

313 

5.0 

TradspoW  stirs  tradedtm] 

10.4 

7£ 

TOO 

73 

43 

KaMna  nwreartre  are  anreaaa  unw  ret  mcUkn  Cnai  aararer.  ‘UKartytaWaiMi.tUCpu 

HireMIreiw. 

■ London  moffcot  data 

Him  end  MT 

32  Week  Mgtra  Kd  lowa 

UFFE  Erpdty  opflooi 

ToM  Rees  835 

Total  ngla 

52 

ToM  rantraoa 

42.403 

Tom  Ms  756 

ToM  Low 

99 

Cato 

24.703 

Sam  1.376 

Puts 

18.100 

Sap  9 Here  creed  on  Eqaly  shares  HcM  on  the  London  Share  Sendee. 


already  has  from  the  Man- 
chester United  board." 

However,  there  were  some 
analysts  who  continued  to 
believe  that  the  bid  could  be 
refered  to  the  regulatory 
authorities,  and  pointed  to 
the  discount  to  the  240p  a 
share  offer  at  which  the 
Manchester  United  shares 
dosed. 

The  possibility  of  a bid- 
ding war  for  the  small  video 
publisher  Vd  sent  its  shares 
soaring  amid  reports  that 
institutional  shareholders 
were  increasingly  unhappy 
with  the  offer  it  accepted  on 
Tuesday  from  Scottish 
Media.  , 

The  surprise  entry  by 
Kingfisher  into  the  fight 
prompted  VCI  shares  to  rise 
13  to  91Vip.  a substantial  pre- 
mium to  the  80p-a-share  cash 
offer  from  Scottish,  which 
valued  VCI  at  £3lm.  Scottish 
Media  made  the  offer  on 
Tuesday  and  on  the  same 
day  bought  103m  shares  in 
the  market,  giving  it  26.4  per 
cent  of  VCI. 

Analysts  said  they  would 
not  be  surprised  if  other 
media  companies  entered 
the  fray. 

At  yesterday’s  closing 
price,  VCI  shares  stood  at 


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Countries  as 
brands 


“ftl 


«as5- 


FT  MASTERING 

WWW.FrMASTiRING.COM 

+44(0)181597  0181 


about  five  times  this  year’s 
forecast  earnings,  and  large 
institutional  shareholders 
were  saying  the  stock  was 
severely  undervalued. 

One  fund  manager  said  he 
thought  a rash  of  redemp- 
tions by  smaller  Investors 
following  recent  market  falls 
had  prompted  some  share- 
holders to  accept  the  cash 
offer  from  Scottish. 

Of  VCI  institutional  share- 
holders. Dresdner  RCM 
Global  Investors  had  sold 
3.ftrn  shares,  while  Hender- 
son sold  500,000.  Thread- 
needle  Asset  Management 
sold  600,000  and  Morgan 
Grenfell  sold  2m. 

Other  substantial  share- 
holders include  Mercury 
Asset  Management  and  Her- 
ald Investment  Trust 

Kingfisher  shares  closed 
up  16  at  534p  and  Scottish 
Media  rose  5 to  656p. 

Shares  In  three  of  the  UK’s 
largest  drinks  companies 
moved  strongly  ahead  after 
Merrill  Lynch  upgraded  its 
recommendation  on  the 
stocks. 

Drinks  on  ttie  up 

In  a note  on  the  sector, 
analysts  at  Merrill  Lynch 
were  said  be  positive  about 
the  outlook  for  Scottish  & 
Newcastle,  Whitbread  and 
Bass,  believing  that  they 
offer  better  long-term  pros- 
pects than  the  regional  brew- 
ers by  virtue  of  the  quality 
of  their  assets  and  more 
their  diversified  leisure 
interests. 

The  broker  raised  its 


recommendation  on  Scottish 
and  Whitbread  to  “accumu- 
late" from  “neutral”,  in  line 
with  its  stance  on  Bass.  Scot- 
tish shares  jumped  25%  to 
8l2%p.  while  Whitbread 
ended  the  session  46  ahead 
at  S18p.  Bass  gained  27  to 
9Q2p. 

Dealers  said  Merrill  had 
reduced  its  underlying 
growth  expectations  for  the 
regional  brewers. 

Coats  Viyella  was  the 
worst  performer  in  the  FTSE 
250  following  poor  interim 
figures  and  disappointment 
that  the  demerger  of  its 
Viyella  business  was  to  be 
delayed.  The  shares  were 
down  about  16  per  cent  or 
7%  at  40ttp. 

The  group  said  the  demer- 
ger would  be  delayed  until 
“greater  confidence  returns 
to  frnanrtfli  markets  and  sen- 
timent improves  in  the  tex- 
tile and  retail  sectors”. 

Elsewhere  in  the  MidCap 
index,  Albright  & Wilson 
was  off  11  at  97%p  as  the 
company  highlighted  the 
strength  of  sterling  and 
Asian  turmoil  as  factors  in 
its  forecast  of  a poor  second- 
half  performance. 

Analysts  were  said  to  be 
knocking  about  £10m  off 
their  forecasts  for  the  year, 
reducing  them  to  about 
£50m.  However,  the  low 
price  of  the  shares  prompted 
talk  of  a potential  bid. 

Caradon  was  down  13%  at 
133%p  following  an  interim 
pre-tax  profits  fall.  Although 
the  results  were  in  line  with 
some  expectations,  they 
name  in  at  the  bottom  end  of 
forecasts  and  there  was 
some  scepticism  over  the 
planned  sale  of  some  of  its 
businesses. 

Investor  appetite  for  Infor- 
mation technology  stocks 
was  apparent  as  Logica 
gained  147%  to  £1822%  amid 
a series  of  upbeat  comments 
from  analysts  following 
strong  results.  Analysts 
were  said  to  be  adding 
nearly  5 per  cent  to  full-year 
forecasts,  taking  them  to 
about  £54m. 


FUTURES  AND  OPTIONS 


■ FTSE 100  «DBC  RmJHB  HffS  HO  per  tJ  httec  pott 


S* 

Dec 

ter 


Open 

53424 

54154 

54544 


Sac  price  Change 

5313.0  -22.0 

5390.5  -204 

54304  -234 


Mgn 

53734 

54494 

54734 


Low 

5250.0 

5338.0 

5454.0 


EH  Mt  Elm  M 

41710  17(877 

14930  44124 

SB  183) 


■ FT8E 2S0 HDEX RITUMS fttfFEJ  CJ0 per  MlnteBoM 


Sep 

Dsc 


4912.0 


4830.0 

48884 


+254 

425.0 


48124  4812.0 


1217 


■ FTSE 100  BBEX  OPTION  HJffQ  (*5298 ) £10  per  1B8  Ww  po4fl 

8100  51 BO  8200  5280  8300  8360  8400  8400 

CPCPCPCPCPCPCPCF 
SH  H8  47»  m 8W  W7  75»  153  91»  118  114  »m  136H  70  Itt  8Bk  16T% 

Oct  »»157%  354  17WJ1W188H  SO  209  280  229  230  240*  200  271 H 178  SO 

HM  483H  224H  401  24S%  *21%  283  M2  X 382*  30  Sm  SO  304  Ml  DM  lit 

Dr  SIM  271HOTH  288  501  Hi  300  471  377%  441  33m  41 W 3S6%  SO#  J7W  Ktt  » . 

Jot  823  470%  7W4512H  714  555  m 508 

Ml  1.720  Ha  1,739 

■ HjMSnranSElWWagOTOHflJH^EIOperMlBdwpoW 

8125  8178  8228  5Z78  8325  5378  8428  MS  . 

Sr  244  6Gb  207  89H  173  85  MM  103%  111  1H  SH  ISO  87  179  46%  211 

oa  am  TG2  334  (778  501  194  289H  212  241  233>i  213  SftUSK  278  T62  SOS  „ 

No*  409K  241  4J8%  250  40514  EW  37*  293%  34*  31214  51514  333  3tt  388  « 578* 

Ok  548  288  470  317  418%3S4%  380%  394 

tet  702%  403  831  43Z%  573%  «86%  818%  507* 

Mi  19.13S  rui  11.207  - Onafttog  Mb  «4  Prartra  Won  are  Bread  on  MDanrt  Prtrea. 

T iwgread  atey  mf» 


LONDON  RECENT  ISSUES:  EQUITIES 


teua 

ptea 

p 

AM 

m 

W 

Hit 

op 

ffrnj 

1908 

Hgh  low  Sock 

area 

pace 

P 

47- 

Net 

Mr. 

nr. 

aw. 

3d  Fit 
fit  net 

• 

Ff. 

11,483 

825 

note  ait* 

730 

-58 

WT7.7C 

43 

15  207 

• 

FP. 

036 

12 h 

8 QhwAMj 

12% 

- 

- 

- 

160 

FP. 

1.712 

192h 

U5  Cob-Mi  Bn 

IBM 

-4 

- 

- 

- 

_ 

FJ>. 

_ 

58 

55%  Etepm  Cre  B Pf 

55% 

- 

- - 

§114 

FJ>. 

141 

117% 

84%  iftretorai  Dtend 

84% 

- 

- - 

FP. 

143% 

SOSECPilWn 

82% 

*1% 

w 

- - 

, 

FP. 

466 

119% 

97%  l*av  Uok  Foodi 

99% 

20 

15 

IS  143 

§130 

FP. 

1198 

129% 

120%  te 

122% 

W- 

- 14J 

FP. 

405.1 

38 

94  US’C  Wn  Mr  PI  B 

96% 

- 

- - * 

_ 

FP. 

145 

114% 

108%  ttecnr 

114% 

42 

tii 

IS  -• 

§ 

FP. 

584 

IB 

15  Hrerey  Extra  Rwi  Cw 

17 

- 

- -a 

froo 

FP. 

242 

109 

99  Dote 

106H 

-* 

07J5 

13  — 

§ 

FP. 

237 

100 

99  DoZvoDtrPrf 

98% 

- 

- 

§32 

FP. 

4.02 

32% 

2B%tPteMPtfcna 

28% 

- 

- 

§65 

FP. 

485 

68% 

62%  IftMe  & Com  Ro 

85 

♦1 

m 

12  2i  . 

FP. 

172 

65% 

37%  tSotePtefen* 

4Z% 

- 

- 

* 

FP. 

436 

103% 

90%  tSwaftM 

90% 

- 

- 

- 

FP. 

. 

34 

21%  Sn9eaW  Cap  Vltw  9BB2  22% 

- 

w 

- 

FP 

175.1 

304 

ISO  Torair* 

152% 

-1 

- 

- 

§ 

FP. 

152.7 

520% 

504HTttmlTMB 

517% 

-1 

- 

- 

FP. 

33% 

32%  Wtiwr  Satertt  8 

33 

- 

- 

§2 

FP. 

248 

2% 

Ti  t Wtew 

2% 

- 

- - . 

Mamas 

re  re* 

Wren  Marlwt  § Racing  m - Hmskn  For  a U nplrewn  rf  W t#m  ayvMi  B*rea»' 

rear  H ire  Lredre  saw*  Sreifca  MM. 


FTSE  GOLD  MINES  INDEX 


Sep  % chg  Sap 
■ on  day  7 


Yrer  Graced*  PTE 
age  yttid  W rate 


82  i 


Sold  KhM  Wax  (27) 

821.16 

-IX 

03270137148 

113 

- 

103646 

70L8b| 

■ Hatianalteflcre 

AMnfl 

103847 

-07 

104549  137BJB 

441 

41.11 

152529 

’ 1 

76563.' 

Atwtiteaia  |7) 

102378 

+3J3 

993.46  155241 

3.10 

7.10 

180945 

81 543  • 

Amslcre  (11) 

887m 

-2.0 

88540  1359.28 

on 

5040 

1574.16 

84749* 

Cnortte-  FT38  MnaU  Uand  1904  M odaa  reaanM  ftpaa  % ttaate  tew  re 

ted  rerewte' 

Bate  US  Oran.  Bare  Ufer  1000  oo  juiaw.  t Pwfld.  Lawat  pdm  nan 

ted* 

UteidUl  ■* 

far.-* 


II  FTSE  Actuaries  Share  Indices 

j||  :■  ‘S  ' F;i:',;.:y  :i 

v'.i.'i.:-'  'j!  Ai'!;!.-;r  rf.- 

The  UK  Series  1 

w 

Year 

am 

Nrt 

ret 

WE 

Wat 

ToM 

S«P  0 

(tv% 

Sdp  8 

S*P  7 

te 

!fc« 

cow 

Mb 

1« 

Un 

FTSE  100 

53114 

-04 

53442 

5347.0 

49057 

X12 

234 

157 

2078  11236 

233878 

FTSE  250 

4411.7 

-UX1 

48044 

4747.1 

46647 

339 

237 

203 

1871 

9119 

2074X0 

FTSE  280  re  tor  Tr 

48^2 

+02 

4856.4 

48014 

46754 

3X8 

235 

239 

17.16  10170 

210165 

FTSE  350 

25414 

-04 

2K42 

25409 

2388.1 

3.18 

238 

138 

1936 

5152 

2286.15 

FTSE  390  ei  ter  TY 

2548.7 

-04 

23612 

25574 

23806 

3.18 

2^ 

139 

19.75 

5332 

T17560 

FTBE  380  Mgbar  YMd 

24S5P 

-04 

24784 

2463.0 

r> 

477 

331 

131 

1571 

0637 

189030 

FTSE  900  LOter  YUd 

28294 

-01 

2B324 

2K3SX 

2*48.1 

279 

134 

108 

2677 

4177 

191932 

FTSESuOC* 

211243 

+05 

210224 

208442 

2281.17 

332 

3.11 

134 

1837 

4131 

184735 

FTSE  OwWfM  re  Irar  TY 

210142 

+07 

208746 

207131 

225761 

430 

332 

103 

1508 

4137 

185577 

FTSE  lUt  Bite 

246440 

-OX 

247521 

247019 

231001 

370 

2.70 

130 

1976 

5138 

2248.32 

FTSE  Afl-Otara  re  lo*  Tf 

2474.75 

-OX 

2*8544 

248123 

231635 

372 

2.72 

139 

19X8 

118108 

■ FTSE  Actuaries  Industry  Sectors 

nejl 

Year 

Grew 

M 

W 

WE 

Xda* 

ToM 

sre» 

t#8e% 

SapB 

S»  7 

te 

(MK 

crew 

otto 

til 

Warn 

io  nanuHcapa 

387343 

-1.1 

391847 

394734 

491538 

333 

379 

134 

1975 

8150 

178777 

12  earacOw  tetoatrteatB) 

2419.13 

-04 

2*2748 

247002 

429018 

532 

570 

234 

1034 

79.47 

76435 

15  01,  »negrtefl(4) 

4489.70 

-12 

452446 

456023 

521769 

37B 

373 

130 

20.74 

98S 

2123163 

16  (H  Excteate  S ProddS 

197548 

-1.1 

1996.80 

197337 

3795.71 

2.73 

279 

138 

4277 

33X1 

122739 

20  ara  MD0STTflAI4(215) 

1714.12 

-Ol 

1715X6 

170542 

206171 

478 

176 

126 

1186 

4573 

101112 

21  C«Wuatan(3S) 

124349 

♦02 

124144 

119053 

1385.07 

*33 

375 

163 

1036 

2438 

111335 

22  Btelng  urns  UereMCEI 

13SB42 

-1J 

141343 

140747 

184233 

578 

432 

104 

11-58 

3039 

76068 

23  Owostadapa 

1961X7 

-15 

202141 

204140 

263238 

439 

474 

1.71 

1438 

6233 

24  DOranflod  tektehaMD 

99149 

-0.7 

996X4 

101428 

1*3033 

533 

5X2 

110 

1074 

5121 

627.76 

26  Bectnadc  & Bed  EqUpOfli 

250QJ7 

-07 

2S1OB0 

2*4838 

2204  X2 

3JM 

2X7 

135 

2121 

5170 

28  EnglneeringtH) 

2227.14 

+08 

221045 

2213.05 

Z80OS5 

470 

182 

2X8 

1172 

56TZ 

144638 

Z7  Empnaartig.  VertdWD 

332579 

+14 

327441 

32M23 

3234.12 

238 

2X5 

339 

1472 

6101 

28  Paper,  Pi*D  & PJWWCa 

ISO  41 

+12 

15714* 

1581.02 

220930 

557 

537 

143 

an 

8315 

728X0 

30  C0NHMBI  OOaOStBP) 

S19XB 

-Ol 

5522X3 

550741 

44907* 

231 

270 

1.7B 

2838 

99X0 

216273 

32  Afimtnle  Beverage^ 

340544 

+05 

338742 

344730 

323237 

330 

377 

130 

1936 

8931 

33  Food  preducora(29 

368048 

-14 

3623.70 

362579 

3QZ933 

231 

2X8 

110 

20XJ 

6433 

34  Houseboat  Goods  & T«M24) 

249746 

-OB 

251325 

2521.18 

31 5038 

4.19 

171 

131 

1531 

54.76 

106105 

36  Hteti  Care(l3) 

224149 

-05 

2253X7 

2239X1 

220336 

279 

2.12 

2.19 

2438 

3178 

37  FtwmaeBiikte(19) 

663243 



S634J& 

9E52.04 

710136 

133 

1.71 

ITS 

4376  1*560 

_38_Toteccoa 

so 

+2.1 

S71K 

amx3 

435037 

5*1 

<72 

136 

1030  130.10 

io  sawmpra 

3256.17 

3257.71 

3245X4 

273632 

232 

2.16 

104 

2379 

9234 

41  Dbotutora^Sj 

199242 

-12 

201747 

199238 

282270 

438 

4.11 

136 

1233 

58X7 

•a  Lrtan  & Hotab(Z7) 

2947.12 

+05 

293825 

29*833 

317000 

37l 

269 

233 

1461 

7AM 

43  Mat9ti4(R 

239929 

-03 

*011X8 

*01031 

4188X8 

231 

2.19 

11* 

2139 

7145 

44  HeUets.  Foodfl^ 

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US  INDICES 


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Vdtona:  417300X00 

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V 


36 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


STOCK 


MARKETS 


Bourses  uninspired  by  Wall  Street  rally 


EMERGING  MARKET  FOCUS 


“««UI 


WORLD  OVERVIEW 


Wall  Street's  record  one-day 
points  gain  on  Tuesday  did 
not  spark  the  kind  of 
follow-up  buying  in  world 
markets  that  many  investors 
might  have  expected,  writes 
Philip  Coggazi- 

Part  of  the  reason  may  be 
that  the  rest  of  the  world  has 
been  made  cautious  by  the 
US  market's  volatility  and 
has  seen  recent  rallies  peter 
out. 

Richard  Lake,  technical 


analyst  at  Brewln  Dolphin 
Bell  Lawrie,  said  that  the 
Dow  Jones  Industrial  Aver- 
age had  been  heavily  over- 
sold and  so  a bounce  was  not 
surprising.  But  even  a 380- 
point  gain  left  the  bench- 
mark well  below  its  50-day 
and  200-day  moving  average 
anrf  he  remains  bearish. 

Some  of  the  market’s 
recent  concerns  returned  to 
haunt  investors.  One  old 
favourite  is  the  fragile 
health  of  the  Japanese  finan- 
cial system  and  yesterday 


the  markets  were  beset  by 
rumours  of  substantial 
derivatives  losses  at  Fuji 
Bank. 

The  talk  was  dismissed  as 
“totally  groundless"  by  the 
bank  but  its  shares  were 
badly  hit,  and  the  overall 
market  was  also  worried  by 
a Japanese  newspaper  report 
suggesting  that  the  leading 
19  Japanese  banks  had 
potential  derivatives  losses 
of  Y24,OOObn. 

Investor  focus  was  kept  on 
Japan  by  the  Bank  of 


Japan's  surprise  decision  to 
reduce  the  overnight  call 
rate  to  0.25  per  cent,  which 
caused  a sharp  drop  in  the 
yen  against  the  dollar. 

This  easing  of  monetary 
policy  was  not  part  of  a co- 
ordinated 07  plan,  according 
to  the  Japanese  authorities. 
And  the  continued  weakness 
of  the  Japanese  economy 
was  highlighted  by  a drop  in 
corporate  capital  spending  in 
the  second  quarter. 

Another  returning  worry 
yesterday  was  the  global 


banking  sector's  exposure  to 
emerging  market  debt. 
Shares  in  Credit  Suisse 
Group  fell  sharply  after  the 
Swiss  bank  revealed  that  its 
total  exposure  to  Russia  and 
Brazil  was  $3.9ta- 

The  leading  Asian  markets 
- Tokyo  and  Hong  Hong  - 
and  European  bourses  - 
Frankfurt  and  Paris  - all 
lost  ground,  bringing  at  least 
a temporary  halt  to  the  mini- 
rally  which  had  begun  on 
Friday. 

James  Montier,  global 


strategist  at  BT  Alex  Brown, 
warned:  “The  crisis  in 
emerging  markets  is  far 
from  over.  Investors  must 
not  become  too  sanguine 
about  the  risks  emerging 
markets  pose  in  an  Increas- 
ingly integrated  world." 

He  edflwy  “There  will  be 
better  opportunities  to  buy 
global  equities.  Don’t  rush  to 
catch  the  faflvng  knife.  It  is 
safest  to  wait  until  it  is 
pmhwMwi  in  the  ground  and 
then  pick  it  up  by  the 
handle.  ” 


Bogota  forced 
to  defend  peso 


Dow  dives  on  Late  fall  leaves  Paris  lower 


impeachment 

speculation 


EUROPE 


AMERICAS 

US  shares  fell  steeply  by 
midday  with  the  Dow  Jones 
Industrial  Average  down 
more  than  100  points  at  one 
stage  as  investors  split  their 
focus  between  the  latest  cor- 
porate results  and  the 
intense  speculation  sur- 
rounding President  Bill  Clin- 
ton, unties  John  Labate  in 
New  York. 

Procter  & Gamble,  the  con- 
sumer products  maker,  sur- 
prised analysts  with  a 
shake-up  of  its  leadership 
plus  scaled-back  earnings 
estimates.  P&G.  a Dow 
stock,  fell  6.2  per  cent  to 
S74U  on  the  news. 

Just  as  weak  was  retailer 
Sears,  which  lost  $3ft  or 
more  than  6 per  cent  to  $47ft 
after  Merrill  Lynch  lowered 
Its  near-term  rating. 

The  morning  sell-off  gath- 
ered momentum  during  a 
press  conference  given  by 
members  of  the  House  of 
Representatives  on  the 
investigation  surrounding 
President  Clinton.  The  grow- 
ing threat  of  impeachment 
proceedings  came  amid 
uncertainties  about  corpo- 
rate profits,  both  of  which 
worked  to  dampen  senti- 
ment. 

“The  biggest  fear  is  the 
fear  of  the  unknown,"  said 
Arthur  Hogan,  chief  market 
analyst  at  Jeffries* Co  in 
Boston.  “What  the  market 
abhors  is  a vacuum  of  infor- 
mation.” 

By  early  afternoon  the 
Dow  was  off  its  lows,  down 
90.62  or  1.1  per  cent  to 
7,930.16,  while  the  broader 
Standard  & Poor's  500  was 


off  10.10  to  1.013.36.  The  Nas- 
daq composite,  which  is 
weighted  in  technology 
issues,  fell  12.16  to  1,646.70. 

Corporate  and  political 
uncertainties  overshadowed 
a rally  in  US  Treasuries  after 
the  Bank  of  Japan  moved  to 
lower  its  key  overnight 
interest  rate.  The  dollar  rose 
sharply  on  the  news,  as  did 
the  30-year  bond,  which 
climbed  i&  to  103&.  yielding 
5.289  per  cent. 

Lower  bond  yields  did 
little  for  financial  shares, 
which  sank  on  new  worries. 
Merrill  Lynch  was  down 
more  than  8 per  cent  at  $60* 
after  the  securities  company 
reported  emerging-market 
losses  in  July  and  August  In 
the  banking  sector.  Chase 
Manhattan  eased  $2  to  $45. 

Semiconductor  leader  Intel 
rose  $1£  to  $83&  after  Pru- 
dential Securities  raised  it  to 
“strong  buy*. 

TORONTO  was  lower  at 
midsession,  weighed  down 
by  precious  metals  issues  as 
the  US  dollar  strengthened. 
The  300  composite  index 
slipped  back  57.17  to  5,919.8 
as  rumours  of  more  political 
unrest  in  Russia  were 
received  negatively  by  the 
skittish  market 

Among  individual  stocks, 
Air  Canada  put  on  15  cents 
to  C$8.15  in  active  trade  on 
speculation  that  a settlement 
to  its  week-old  pilots'  strike 
may  be  near. 

Barrlck  Gold  lost  35  cents 
to  C$25.10  in  response  to  the 
weaker  bullion  price. 

Repap  Enterprises  rose 
half  a cent  to  17%  after  RBC- 
Dnminion  Securities  crossed 
more  than  lm  shares. 


Cuts  fail  to  convince 


SAO  PAULO  slid  1.9  per  cent 
at  midsession  on  concern 
that  fiscal  measures 
announced  by  the  govern- 
ment on  Wednesday  would 
not  be  sufficient  to  resolve 
the  country's  mounting  eco- 
nomic problems. 

The  Bovespa  Index,  which 
fell  as  low  as  5,627  during 
morning  trade,  was  108 
lower  by  midsession  at  5.709. 

On  Tuesday,  the  govern- 
ment said  It  would  cut 
R$4bn  from  this  year's  bud- 
get. 

BUENOS  AIRES  was 
lower,  under  the  influence  of 
Wall  Street's  choppy  open- 
ing. and  in  a continuation  of 
Tuesday's  retreat  on  profit- 
taking.  The  Merval  index 


lost  &93  or  2.4  per  cent  to 
356.11. 

! MEXICO  CITY  stumbled  In 
midday  trade,  dragged  down 
by  overnight  weakness  on 
Aslan  markets  and  the  list- 
less Dow.  Hie  IPC  index  was 
down  56.19  or  1.7  per  cent  at 
3,161.05. 

The  peso  also  came  under 
pressure,  trading  between 
10,34  and  10.37  pesos  to  the 
dollar  on  concern  over  the 
country's  trade  balance. 

CARACAS  slumped  1.7  per 
cent  on  concern  over  the 
country’s  reserves  and  its 
ability  to  defend  the  curren- 
cy .The  EBC  Index  lost  49.51 
to  2.806.68  in  spite  of  a state- 
ment by  finance  minister 
Maritza  l2aguirre. 


A shakeout  for  the  banks 
and  big  falls  for  ofi.  stocks 
sent  PARIS  lower  in  the 
final  hour  of  trading.  The 
CAC  40  index  ended  off  41.61 
at  3,762.13  after  touching  a 
session  best  of  3,822.91. 

Society  G6n6rale  fell  FFr40 
to  FFr954  as  nervousness 
built  ahead  of  six-month 
results,  announced  after 
trading.  BNP  shed  FFr23  to 
FFr370  and  CCF  tumbled 
FFr33.30  or  7.5  per  cent  to 
FFr412. 

For  most  of  the  day  the 
market  bad  managed  to  keep 
its  head  above  water,  thanks 
to  upbeat  results,  notably 
from  Peugeot  which  gained 
FFr29  to  FFrl.QQO.  Renault 
added  FFr9.90  to  FFr276. 
Among  motor  component 
groups,  Michelin  gained 
FFr9.50  to  FFr263.20. 

But  the  bears  eventually 
got  the  better  of  sentiment 
J Morgan  cast  a cloud 
over  oil  shares  by  cutting  its 
oil-price  forecasts  and  reduc- 
ing sector  earnings  esti- 
mates. Elf  Aquitaine  came 
off  FFr31  at  FEY658  and  Total 
lost  FFr19  at  FFr616. 

Pechiney,  which  has 
lagged  the  market  by  more 
than  a third  over  toe  past 
three  months,  stayed  dull, 
losing  FFr  10.70  to  FFr175.3 
in  spite  of  broke:  optimism 
ahead  of  next  week’s  first 
half  results.  J.P.  Morgan  has 
upgraded  the  shares  to 
“buy”  and  stands  by  a target 
price  of  FFr235. 

Axa-UAP  continued  to 
gain  ground,  adding  FFr22  to 
FFr618  after  Paris  broker 
Cheuvreux  put  toe  stock  on 
its  recommended  list  Seita 
rose  FFr5.80  to  FFr283  on 
strong  interims  and  news  of 
a share  buyback. 

FRANKFURT  saw  selling 
pressure  accelerate  late  in 
toe  session  after  Wall  Street 
opened  weaker,  and  by  toe 
dose  of  electronic  trade  the 
Xetra  Dax  index  was  137.18 
lower  at  4.958.44. 

Adidas  tumbled  DM15.30 
to  DM199.25  amid  reports 
that  investors  were  unim- 
pressed by  the  start  of  a 
two-day  roadshow  by  toe 
sporting  goods  maker  in 
London. 

Dresdner  Bank  lost  DM4  to 
DM72U50  after  its  chief  execu- 
tive, Bernhard  Walter  said 


toe  group  was  not  consider- 
ing any  link-up  with  Insurer 
Allianz  that  would  go 
beyond  co-operation.  He 
added  that  Dresdner  was  not 
interested  in  purchasing 
BFG  Rank,  but  declined  to 
comment  on  whether  the 
German  group  planned  to 
buy  PaineWebber. 

The  remainder  of  the  sec- 
tor was  spooked  by  reports, 
subsequently  denied,  that 
Japan's  Fuji  Bank  had  suf- 
fered massive  derivatives 
losses.  Deutsche  Bank  fell 
DM6.15  to  DM108-35,  while 
HypoVereinsbank  lost 
DM10.60  to  DM125.85  as  toe 
group  said  it  planned  to 
pypanri  in  western  European 
markets. 

AMSTERDAM  moved 
lower,  hit  by  weak  financials 
and  a steep  slide  at  Hoogov- 
ens  on  worries  about  Asian 
steel  imports.  The  AEX 
index  came  off  19.09  at 
1,076.59  in  good  turnover. 

Financials  stumbled  badly 
as  Russian  worries  and  Japa- 
nese derivatives  scares  hit 
sentiment.  ABN  Amro  was 
off  F1L80  at  F14L50  on  9.8m 
shares  traded  and  ING  was 
down  FI  5 JO  or  4 J per  cent 
at  FI  112.40. 

A trade  press  story  sug- 
gesting that  US  capacity  was 
being  cut  back  as  a result  of 
cheap  Asian  steel  imports 
sent  shivers  through  the 
metals  sectors.  Hoogovens 
took  the  brunt  of  toe  selling, 
tumbling  FI  5 or  6 £ per  cent 
to  FI  69.  ■ 

The  pilots’  strike  at  US 
partner  Northwest  Airlines 
hit  ELM.  which  fell  FI  L20  to 
FI  64.  Employment  agency 
Content  Beheer  tumbled 
FI  16.10  to  FI  53  after  Gold- 
man Sachs  downgraded  the 


shares  following  Tuesday's 
profits  warning. 

Akzo  Nobel  continued  to 
gain  from  broker  optimism, 
adding  FI  1.60  to  FI  60.60  for 
a two-day  gain  of  6.3  per 
cent.  Wolters  Slower  rose 
FI  6.80  to  FI  369  0.80  after 
CSFB  raised  its  share  price 
target  from  FI  350  to  FI  400. 

ZURICH  was  dragged 
down  by  selling  in  CS  Group 
as  the  gloss  of  good  six- 
month  figures  was  removed 
by  news  that  CSFB,  Its 
investment  banking  arm. 
bad  net  exposure  to  Brazil 
and  Russia  totalling  $3  Jbn. 

The  SMI  index  tumbled 
230.7  or  3.3  per  cent  to 
6.803.1. 

CS  Group  turned  sharply 
lower  after  detailing  its 
exposure  to  Russia  and 
Brazil. 

Shares  had  started  firmer 
on  news  that  first-half  group 
profit  rose  36  per  cent,  but 


fell  when  the  group  said  that 
its  CSFB  arm  had  net  expo- 
sure to  Russia  of  $2. 159  bn 
and  to  Brazil  of  $i.746bn  as 
of  September  4.  By  the  close, 
the  shares  were  down  SFr32 
at  a day’s  low  of  SFr2l2. 

UBS  dropped  SFr22J0  to 
SFr476  as  other  banks  and 
insurance  groups  came 
under  pressure.  Zurich 
Allied  lost  SFr51  to  SFr848 
and  Baloise  lost  SFr49  to 
SFrl.050- 

HELSXNKI  featured  a diz- 
zying 20  per  cent  plunge  in 
Huhtamaki  after  the  confec- 
tionery anri  packaging  group 
issued  a profit-warning  due 
to  foreign  exchange  and 
credit  losses  in  Russia. 

By  the  close,  Huhtamaki 
was  down  FM50  at  a year's 
low  of  FM208  after  toe  com- 
pany said  that  this  year’s 
earnings  per  share  would 
fall  below  last  year's 
FM15.04,  reversing  an  earlier 
forecast  of  an  increase  in 
earnings. 

Analysts  said  that  Huhta- 
maki was  not  previously  per- 
ceived as  a company  with 
large  exposure  to  Russia. 

The  Hex  index  was  flat, 
finishing  1.46  weaker  at 
4,548.89. 

Nokia,  which  opened  at 
FM430  after  a 13.6  per  cent 
surge  in  New  York  over- 
night, gave  back  some  of  its 
gams  to  close  FM1  higher  on 
the  day  at  FM420. 


Written  and  etfitod  by  Wcftaat 
Morgan,  Jeffrey  Brown,  Peter 
ODonneil  and  Paul  Gregan 


Turmoil  in  the  world’s 
fiwpwHgi  markets  and  a set 
of  negative  Internal  factors 
have  severely  depressed  Col- 
ombian equities. 

Since  Russia  devalued  the 
rouble.  Bogota’s  benchmark 
IBB  index,  has  fallen  30  per 
cent  in  dollar  terms  and  Is  51 
per  cent  down,  this  year,  hav- 
ing been  bludgeoned  by  high 
interest  rates,  an  alarming 
fiscal  deficit  and  presiden- 
tial-election jitters. 

In  early  trading  yesterday, 
the  IBB  was  up  L82  at  803J31- 
Some  traders  now  believe 
the  market  has  touched  bot- 
tom. However,  thoughts  of 
recovery  may  be  premature. 

In  last  week’s  surprise 
devaluation,  the  central 
bank  shifted  the  exchange 
rate  band  9 per  cent,  making 
Colombia  the  first  Latin 
American  country  to  react  to 
events  in  Russia.  That  left 
many  observers  with  the 
feeling  the  move  was  not 
only  premature  but  lame. 

“The  peso  is  still  over- 
valued the  market 
knows  it,”  said  Sergio  Calde- 
rtn,  a stock  market  analyst. 

While  the  central  bank 
said  it  devalued  to  protect  its 
international  reserves  from 
speculation  against  the  peso, 
toe  measure  has  so  for  foiled 
to  dampen  the  demand  for 
dollars.  Last  week,  selling 
pressure  forced  the  bank  to 
spend  $80m  a day  to  defend 
the  peso’s  new  limit. 

Reserves  are  now  down  to 
an  estimated  $8.5bn  com- 
pared with  almost  $10bn  at 
the  start  of  toe  year. 

The  frenetic  speculation 
has  driven  toe  bank  back  to 
restrictive  policies.  On  Mon- 
day, it  began  reducing  toe 
sale  of  its  repurchase  agree- 
ments or  “repos”  - a mecha- 
nism through  which  the 
bank  controls  liquidity  to 
the  financial  system. 

With  the  central  bank 
vowing  to  defend  the  new 
band  even  at  the  cost  of  ris-' 
ing  interest  rates,  investors 
are  haling  out  of  the  stock 
markets  once  again  in 
search  of  a haven  in  fixed- 
income  instruments. 


Adam  Thomson 


Jo’burg  and  golds  tumble 


SOUTH  AFRICA 


Johannesburg  took  a tumble 
in  thin  trade  with  investors 
reluctant  to  commit  them- 
selves without  a lead  from 
New  York. 

Golds  closed  47.4  or  4.7  per 
cent  lower  at  952.1.  Analysts 


attributed  the  losses  to  Wall 
Street’s  surge  on  Tuesday 
which  had  prompted  some 
investors  abandon  toe  safe 
haven  provided  by  bullion. 

The  overall  index  fell  74.7 
or  1.5  per  cent  to  4,975.3: 
industrials  lost  76.3  to 
5,7563. 


Bank  losses  end  Tokyo  rebound 


ASIA  PACDFIC 

Rumours  about  Japanese 
banks’  losses  from  derivative 
trading  pulled  TOKYO 
lower,  breaking  a three-day 
winning  streak,  writes 
Alexandra  Harney. 

The  Nikkei  225  average 
did  15735  or  1.1  per  cent  to 
14,755.54  after  a newspaper 
report  fuelled  concerns 
about  derivatives  losses  at 
Fuji  Bank  and  other  institu- 
tions. The  market  moved 
between  14,629.62  and 

15.099.85  during  a day  of 
moderate  trading. 

Turnover  was  an  esti- 
mated 4i7m  shares.  The  mar- 
ket’s momentum  was  nega- 
tive, with  declining  issues 
exceeding  winners  by  798  to 
354.  with  141  shares 
unchanged. 

Banking  stocks  lost  1.9  per 
cent  on  worries  about  the 
sector's  financial  health. 
Fuji  Bank,  which  said  its 
possible  losses  were  much 
less  than  had  been  reported, 
lost  Y59  to  close  at  Y329. 
after  touching  a record  low 
of  Y32Q.  Fuji  was  the  day’s 
most  heavily  traded  share. 

Long  Term  Credit  Bank  of 
Japan,  toe  ailing  institution 
at  the  centre  of  political 
talks  about  the  financial  sec- 
tor's problems,  gained  Y2  to 


Y54.  Sakura  Bank  slid  Y15  to 
Y248,  and  the  Bank  of 
Tokyo-Mltsubishi  lost  Y16  to 
Yl.074. 

Steel  shares  also  lost 
ground  on  concerns  about 
the  sector's  profitability. 
Nippon  Steel,  toe  industry 
leader,  fell  Y4  to  Y222.  NKK 
dipped  Y5  to  Y96,  and  Kawa- 
saki Steel  slid  Y5  to  YI85. 
The  industry  has  issued  dis- 
mal profit  warnings  for  this 
year. 

The  electronics  sector, 
which  has  been  rocked  by 
the  collapse  in  semiconduc- 
tor prices,  suffered  big 
losses.  Fujitsu  tumhled  Y38 
to  Yl.244,  NEC  lost  Y38  to 
Y928,  and  Matsushita  Elec- 
tronic Industries,  which  yes- 
terday announced  the  clo- 
sure of  a chip  plant  in  toe 
US.  slid  Y4Q  to  Y2.020. 
Hitachi  was  unchanged  at 
Y620. 

The  Topix  index  of  all 
first-section  shares  lost  15 
points  or  1-33  per  cent  to  fin- 
ish at  1,116.01. 

KUALA  LUMPUR  contin- 
ued the  see-saw  performance 
that  has  characterised  trad- 
ing since  the  imposition  of 
capital  controls  earlier  this 
month.  Up  22  per  cent  on 
Monday  and  down  21  per 
cent  on  Tuesday,  the  bench- 
mark composite  index  rose 


Philippines 

Etonfecorapaglta 


WOO 


Jan  1996 
swot  onewMCV 


Sep- 


40.09  or  11.5  per  cent  to 
389.65  yesterday  as  investors 
targeted  blue  chips. 

Brokers  said  local  funds 
had  been  active  and  that  this 
had  sparked  retail  support 
Telekom  rose  50  cents  to 
MS6.10.  Tenaga  Nasional  48 
cents  to  MS3.70  and  Petrouas 
M$1.30  to  MS6.40.  Malayan 
Banking  gained  52  cents  at 
M$4.1B. 

HQNG  KONG  tumbled  3£ 
per  cent  as  profit-taking  set 
in  after  three  days  of  hefty 
gains.  Short-covering,  which 
bad  boosted  toe  market  over 
recent  sessions,  dried  up 
leaving  little  genuine  buying 
interest  and  causing  a large 
drop  in  turnover. 


The  Hang  Seng  index 
closed  on  a loss  of  28330  at 
7,905.45  after  rising  12  per 
cent  during  the  three  previ- 
ous days.  Turnover  dipped  to 
HK$4.7bn  from  Tuesday's 
HK$8-4bn. 

Among  the  big  blue-chip 
movers.  Bank  of  East  Asia 
plummeted  HKS120  or  10.5 
per  cent  to  HK$10.20  and 
HSBC  Holdings  fell  HKI4  or 
2.5  per  cent  to  HK$158. 

SINGAPORE  was  firmer 
with  interest  focused  mainly 
on  arbitrage  between  Malay- 
sian shares  traded  over  the 
counter,  or  Glob,  and  those 
on  the  Kuala  Lumpur 
exchange,  which  pushed  vol- 
ume up  to  a very  heavy 
608m  shares. 

The  Straits  Times  index 
put  on  16.78  to  885.46  while 
the  UOB-OTC  index,  which 
tracks  mostly  Malaysian 
shares,  shot  up  36  per  cent 
or  60.77  at  229,97. 

MANILA  fell  as  leading 
stocks  met  with  selling. 
PLDT,  which  last  week 
announced  measures  to 
ward  off  hostile  takeover 
bids,  lost  20  pesos  to  795 
pesos.  Ayala  Land  fell  50 
cents  or  S3  per  cent  to  5.10 
pesos. 

The  composite  index 
ended  the  session  off  34.65  or 
23  per  cent  at  1,157.43. 


Look  what  makes  investments 
and  businesses  tick  in 


Bahrain 


S'  100%  foreign  ownership  of  business 
Sf  No  personal,  corporate  or  withholding  taxes 
2f  Free  movement  of  capital 


To  find  out  more,  contact  Robin  Marriott,  P.0.  Box  11299, 
Manama,  Bahrain,  Arabian  Gulf.  Or  fax  (+973  531117)  or 
visit  our  website  on  http://www.bpmb.com 


BAHRAIN 


PROMOTIONS  & 


MARKETING  BOARD 


f\* 


'1 


* » 


» **»■ 


Last  Wednesday,  San- 
tander Investment  went 
underweight  on  local  equi- 
ties, revising  down  from  4 to 
3 per  cent  its  weighting  for 
the  Colombian  content  of 
regional  portfolios. 

Other  longer-term  prob- 
lems have  also  conspired  to 
undermine  stock  market 
confidence.  The  country's 
fiscal  deficit  is  still  widely 
considered  the  principle 
threat  to  Colombia's  macro- 
economic stability. 

The  deficit,  officially  esti- 
mated at  3.5  per  cent  of  gross 
domestic  product  this  year 
compared  to  0.3  per  cent  four 
years  ago,  could  be  as  high 
as  4 J per  cent  when  finally 
calculated.  There  are 
rumours  that  US  credit  rat- 
ing agencies  could  withdraw 
Colombia's  coveted  invest- 
ment-grade status. 

President  Andrfis  Past- 
rana’s newly  installed  gov- 
ernment has  acted  quickly  to 
try  to  reduce  the  deficit  It 
announced  a cut  in  this 
year’s  3S.500bn  peso  budget 
of  approximately  875bn 
pesos.  And  last  week,  it  pres- 
ented the  congress  with  a 
tax-reform  package  aiming 
to  cut  toe  deficit  to  2 per 
cent  of  GDP  by  next  year. 

But  there  are  growing 
signs  that  congress  will  take 
Its  time  in  approving  the 
package,  while  significantly 
watering  down  key  propos- 
als along  the  way. 


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The  Business 
of  Travel 

Travellers  stand  to  benefit  as  Asian 
businesses  attempt  to  pick  up  the 
pieces  from  economic  crises, 
writes  Scheherazade  Daneshkhu 

Opportunities 
as  the  tiger 
turns  mouse 


“The  Aslan  tiger  has  turned 
into  an  Aslan  mouse.”  said 
one  Singaporean  hotelier 
recently,  reflecting  the 
region's  mood  following  the 
sudden  change  in  its 
economic  fortunes. 

Hotels  and  airlines  in  most 
parts  of  the  region  have 
experienced  a heavy 
downturn  in  business 
following  currency 
devaluations,  economic 
pessimism  and  ecological 
disaster. 

Cathay  Pacific.  Hong 
Kong’s  de  facto  Bag  carrier, 
reported  its  first  loss  in  over 
two  decades  for  the  first  half 
of  this  year,  as  both  tourism 
and  business  travellers 
evaporated. 

The  airline  is  trying  to 
improve  revenues  through 
greater  efficiencies  - retiring 
old  fleet  in  favour  of  new 
aircraft  - and  launching 
special-price  promotions. 
While  it  has  not  yet  cut 
Asian  routes,  frequencies 
have  been  reduced. 

For  many  business 
travellers,  though,  the 
downturn  has  meant 
cheaper  and  easier  travel  to 
the  region.  Some  frequent 
flyers  report  that  they  have 
been  able  to  take  their  pick 
of  seats  in  the  front  cabin 


and  have  been  able  to  book 
into  their  favourite  hotels 
without  a problem.  ' 

“Two  or  three  years  ago  a 
London  to  Hang  Kong  flight 
was  sold  out  three  to  four 
weeks  in  advance,  and  the 
same  was  true  fra-  flights  an 
certain  days  to  Tokyo  or 
Singapore.  That’s  not  an 
issue  any  more,”  says  Kyle 
Davis,  vice-  president  of 
purchasing  management  at 
American  Express,  the 
business  travel  agent 

Business  class  airfares  to 
Asia  from  Europe  were  flat 
for  the  first  time  in  two 
years  during  the  first 
quarter  of  the  year,  and 
economy  class  lares  dropped 
by  3 per  cent  compared  the 
same  period  last  year, 
according  to  Amex. 

“Hie  economic 
uncertainty  has  prompted 
airlines  to  offer  some  good 
deals  for  the  leisure  market, 
particularly  in  unpublished 
tores,”  says  Mr  Davis. 

In  spite  of  this,  demand 
for  business  travel  from 
Europe  to  Asm  continues  to 
be  highly  inelastic,  so  while 
airlines  are  probably 
thinking  it  is  not  a good 
time  to  increase  business 
travel  tores,  they  don’t  need 
to  lower  them  either.” 


The  main  inconvenience 
that  frequent  flyers  to  the 
region  report  is  that  some 
carriers  have  introduced 
stop-overs  on  some 
previously  direct  regional 
flights  So  while  finding 
room  on  an  aircraft  is 
usually  no  problem,  the 
flight  could  take  a less 
convenient  route  than 
before. 

Hotels  in  Asia  tell  a 
similar  story:  empty  rooms 
and  reduced  profits  mainly 
due  to  a toll  in  Japanese 
tourists.  Hong  Kong  is  also 
missing  the  affluent  South 
Koreans,  Thai  and 
Indonesian  families  who 
usually  travel  to  the  former 
British  colony  to  shop. 

This  drop  in  business  baa 
led  to  distressed  luxury 
goods  retailers,  whose  shops 
line  hotel  arcades.  Betail 
tenants  in  the  plush 
Peninsula,  for  example,  have 
been  agitating  for  a 40  per 
cent  cut  in  rents. 

For  Hongkong  & Shanghai 
Hotels,  which  owns  The 
Peninsula,  the  threat  of  a 
tenant  walk-oat  is  just  one 
more  woe  to  be  faced. 
Occupancy  at  The  Peninsula 
in  the  first  half  of  the  year 
was  just  45  per  cent,  despite 
a HKJ661  reduction  in  the 


H /T>CX  J 


r tfr  * 3 nersor  T 

S SP 


MU 

V.  .,»»  •:$; 


uv  ?!V 


V'  7 


. .V  ‘ A 


average  room  tariff  to 
HTTS2,ans_ 

Hotel  room  rates  have 
tollen  significantly  in  many 
countries  in  the  region.  They 
dropped  in  the  first  stx 
months  of  the  year  by  more 
than  30  per  cent  in  Malaysia, 
15  percent  tn  Singapore,  13 
per  cent  in  South  Korea  and 
by  11  per  cent  in  China  and 
Hong  Kong  compared  with 
the  same  period  last  year, 
according  to  Hogg  Rohlnson, 
the  business  travel  agent 


Carolyn  Moore,  head  of 
hotel  consulting  at  Hogg 
Robinson,  says  Thailand 
appeared  to  be  bucking  the 
trend,  with  room  prices  up  5 
per  cent  but  they  declined 
14  per  cent  the  previous  year 
after  the  devaluation  of  the 
baht 

Hyatt  International  says 
the  current  turnaround  te  ■ 
taking  place  after  20  years  of 
unpaxafloled-growth  in  * 
reservations  and  profits.  But 
in  some  places,  such  as 


Jakarta,  where  political 
turmoil  has  added  to 
economic  difficulties,  hotel 
average  occupancy  rates 
have  plunged. 

The  group  says  it  is  now 
quoting  room  rates  in  US 
dollars  in  some  areas,  such 
as  Bangkok,  in  order  to 
protect  the  US  dollar  debt 
service  of  owners  of 
some  of  the  hotels  it 

manages whfle'tobat1’5  • 

currencies  fluctuate. 
“Generally,  the  business 


Thursday  September  10  1998 


IN  THIS  SURVEY 

• Hotel*:  Magic  eyes  monitor  rrfnfoars;  ‘Paradise1  starts  to  fed  the 

pmeft;  Loyafty  tareffls PapaM 

• Car  Wtk  Going  Green  and  friendly;  Ftonferf  companies  taka 

Sweet)  road  Paps  4 

• Air  trawfc  BA's  new  HQ;  Arresting  violence  to  thecabh  Paget 

• Heaffle  The  difficulties  efisabted  fcawJters  fena  Page  7 

• Trawl  management  The  sum  often!  opportunities;  Intranets  can  ' 
ease  the  bootdng  pain;  Etactrontc  Vanstaflon  equipment  Pages 


• TmeSon*  tales:  Jennifer  Smith  & Anna  Zagns 

• Ctthagsrauu* Scanfcwfe,  the  Baffles 

• Technology;  ft's  easy  to  stay  to  touch 

• Diary:  Conferences  and  exhUSons 


Page  > 
Tags*  16-11 

Pag*  12 

S p« 


traveller  should  shop  around 
as  there  are  still  lots  of  deals 
to  be  had,  especially  in  the 
softer  markets,”  says  Peter 
Bauml,  Hyatt's  director  of 
marketing  for  Asia-Pacific. 
“We  are  trying  to  offer  added 
value  and  tailored  business 
packages  to  attract  the 
international  traveller.” 

Mandarin  Oriental,  the 
hotels  arm  of  the  Jardlne 
group,  which  saw  a quarter 
of  its  net  profits  wiped  off 
last  year,  believes  there  will 
be  a further  deterioration  in 
travel  and  tourism  in  the 
region  due  to  the  state  of  the 
Japanese  economy  and  the 
political  upheavals  in 
Indonesia. 

Like  other  hotels  in  the 
region,  it  is  offering  free 
services  such  as  breakfast,  a 
newspaper  and  double  bonus 
awards  with  eight  airlines  at 
its  12  properties. 

“It’s  a good  opportunity 
for  corporates  to  get 
attractive  deals,"  says  Ms 
Moore.  “Service  is  always 
very  good  there  and  we 
expect  prices  to  remain 
competitive  through  1999. 

“But  you  should  review 
rates  on  a regular  basis 
because  prices  could  go 
down  further.  If  you’ve  got  a 
negotiated  rate,  the  chances 
are  that  the  published  rack 
rate  might  be  cheaper 
because  stock  is  so 
distressed  at  certain  times. 
Also,  another  chain  might 
give  you  better  value,  so  it's 
worth  shopping  around.” 

It  Is  worth  remembering, 
however,  that  despite  the 
discounts  and  free  services, 
you  could  feel  a hole  in  your 
pocket  unless  you  are 
careful  One  frequent  flyer 
recounts  how  he  stayed  at  a 
ptoslr^toBgKonghnlel 
usually  beyond  his 
company's  means:  “I  asked 


for  room  service  to  send  me 
some  coffee  and  realised 
later  Td  spent  about  £15  on  a 
pot  of  coffee.  So,  although 
the  adjustment  In  the  room 
rates  is  fantastic,  that 
decrease  is  not  reflected  all 
round.” 

The  outlook  for  businesses 
in  the  region  is  not  totally 
bleak.  Mr  Davis  notes  that 
business  class  fares  from 
Europe  to  Asia  rose  by  6 per 
cent  in  the  second  quarter  of 
the  year  compered  with  the 
same  time  last  year.  “We 
never  thought  business  eias* 
tores  to  the  eastern  Asia 
would  go  down  because  once 
a business  traveller  decides 
to  go  that  decision  win  not 
be  affected  by  a 10  per  cent 
tore  difference.  Also,  airlines 
responded  to  the  slump  in 
air  traffic  to  Asia  by 
reducing  the  number  of 
flights  rather  than  lowering 
prices.” 

But  hotel  rates  are 
expected  to  remain  under 
pressure  and  new  supply  is 
also  likely  to  be  affected. 
Many  of  the  100,000  rooms 
mvter  development  In  the 
region  could  be  shelved  or 
put  to  alternative  use, 
according  to  Bill  Cross, 
regional  director  for  Asia 
with  Knight  Frank. 

The  international  property 
consultant  also  predicts  that 
Some  hotels  COUld  <*-hanga 
hands  as  outside  investors 
look  for  buying 
opportunities  in  the  regkuL 

But  those  that  survive 
could  come  out  of  it 
strengthened.  “Asia  is  set  to 
emerge  as  a much  stronger 
region  with  wealth  based  on 
genuine  enterprise,  not  on 
inflated  properly  prices,"  It 
predicts. 

• Additional  reporting  by 
Louise  Lucas  in  Hang  Kong 


\i&<  i*' 


n 


~-v' 

r.-V  -• 


A V: 

l'..  l i- 


Problem. 

I’m  in  Martinique.  I’ve  been  bitten 
by  a large  insect  and  my  aim  is 
swelling  badly  - what  do  I do? 
It’s  llpni  and  I've  just  arrived  at 
my  hotel  in  Lima.  It  seems  they 
haven't  received  my  reservation. 
My  Spanish  is  limited,  the  hotel 
is  full  and  l have  a heavy  business 
schedule  tomorrow.  Help! 
I'm  in  a small  village  outside 
Oporto,  I need  a hire  car  NOW  - 
and  I don't  speak  Portuguese! 
I've  been  arrested  in  Toulouse.  J don't 
really  know  what  for  but  1 believe 
they  think  I stole  something  from  a 
restaurant  The  authorities  are  going 
to  put  me  in  prison.  Can  you  help? 
Tm  in  Riyadh  and  my  Saudi  visa 
xvas  in  my  luggage  - which  has  been 
lost  in  transit.  What  am  1 do? 
I need  to  get  an  urgent  message  to 
my  business  partner  but  his  line  is 
engaged  and  my  flight  is  boarding. 

Can  you  help? 
My  husband  has  passed  out  in  our 
hotel  room  and  we're  due  to  fly  home 
in  two  hours  - he  needs  medical  help 
and  we'll  never  make  our  flight 
What  can  I do? 
I'm  Malaysian  and  I'm  due  to  time! 
to  Tanzania  in  a couple  of  weeks. 
My  friend  has  told  me  1 don't  need 
a visa,  is  Ire  right ? Also,  what's 
the  best  currency  to  tafc? 
My  business  meeting  tomorrow  has 
been  switched  to  Kuwait  City.  I need  to 
change  my  flights,  get  some  local 
currency,  find  some  appropriate 
clothing  for  a Muslim  country  and 
get  a message  to  my  family. 


Your 

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. t 


II 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


THE  BUSINESS  OF  TRAVEL  2 

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Greece  slips 
to  unenvious 
flight  record 


The  skies  over  Greece  are  Europe’s  worst 
"black  spot”  for  flight  delays.  Lack  of  radar 
cover  is  the  main  reason,  says  the 
Brussels-based  Association  of  European 
Airlines.  This  forces  aircraft  to  fly  further 
apart  than  they  would  in  areas  where  air 
traffic  control  is  better  equipped.  The 
problem  is  compounded  by  the  popularity 
of  Greece  as  a holiday  destination  and  the 
fact  that  Its  airspace  is  used  by  flights  to 
and  from  Asia,  Africa  and  the  Middle  East. 

Another  serious  bottleneck  occurs  over 
northern  France  - a busy  crossroads  for 
north-south  and  east-west  flights  - with 
substantial  delays  in  airspace  controlled 
from  Paris  and  R helms. 

The  association  predicts  gloomily  that 
delays  are  climbing  back  to  the  crisis  levels 
of  the  late  1980s.  Its  membersreport  that  60 
per  cent  of  hold-ups  in  winter  and  65  per 
cent  in  summer  are  caused  by 
infrastructure  problems  which  are  largely 
beyond  their  control. 


dalliance.  But  a recent  survey  suggests  a 
large  number  take  wives,  husbands  or 
full-time  partners  with  them.  A 
surprisingly  high  17  per  cent  were 
accompanied  by  someone  hot  involved  in 
the  meeting,  researchers  report. 

Presumably  the  appeal  is  sightseeing  and 
shopping,  rather  than  the  sessions.  That 
could  account  for  the  discovery  that  39  per 
cent  said  they  would  like  to  return  to  the 
destination  for  a short  break  or  holiday. 

The  survey,  in  which  conference 
arrangers  were  also  questioned,  was 
carried  out  on  behalf  of  Britain's  national 
tourist  boards.  It  showed  that  just  over  half 
of  alUJK  corporate  conferences  are  held  in 
hotels  and  45  per  cent  of  conferences 
organised  by  associations  are  in 
purpose-built  centres.  Corporate  delegates 
attending  them  spend  an  average  of  £657. 
though  research  company  Systems  Three 
warned  that,  because  a significant  number 
of  delegates  spend  750-plus,  that  figure  may 
be  misleadingly  high.  Across  the  board, 
delegates  spend  between  £30  and  £36  a head 
on  meals  and  drinks  on  top  of  the  basic 
package. 


Saving  the  pounds  at 
Sheffield  hotels 


US  agents  draw  up 
rights  list 


Air  fores  on  US  domestic  routes  rose  by  an 
average  of  only  1.7  per  cent  in  the  year  to 
June.  The  price  of  economy  and.  first  class 
tickets  rose  by  IL2  per  cent  and  1.1  per  cent 
respectively,  says  the  country's  Air 
Transport  Association. 

Despite  that  good  news,  airlines  face  “a 
rising  tide  of  consumer  dissatisfaction", 
warns  the  American  Society  of  Travel 
Agents.  It  has  drawn  up  a customer  "bill  of 
rights’*  against  which  carriers  will  be 
judged.  Fundamental  rights,  its  says, 
include  honesty  about  advertised  fores, 
schedules  and  seat  availability,  the  truth 
about  cancellations  and  delays,  and 
courteous  assistance  for  disabled 
passengers. 

The  society  wants  travellers  to  respond 
to  a survey  on  its  web  site  so  that  it  can 
produce  regular  reports  on  how  airlines  are 
performing. 

Meanwhile,  the  Air  Transport  Users' 
Council  - the  UK  consumer  watchdog  - 
reports  a 5 per  cent  foil  in  complaints 
against  airlines  in  the  year  to  the  end  of 
March  - but  says  the  number  is  received 
has  trebled  in  10  years.  Delays  are  the 
biggest  source  of  grumbles  (is  per  cent  of 
the  1997-98  total)  followed  by  baggage 
problems  (15  per  cent). 


Sheffield  was  the  cheapest  place  to  stay 
among  the  UK's  leading  regional  cities  last 
year.  A survey  by  management  consultants 
Pairnel  Kerr  Forster  shows  the  average 
amount  paid  for  a room  there  was  £43.37  - 
slightly  more  than  the  45.87  paid  in 
Coventry.  Edinburgh's  hoteliers  achieved 
the  highest  average  at  £68.57  - up  10.8  per 
cent  over  1996  - followed  by  Manchester 
with  £63.95.  The  biggest  price  rise  was  in 
Bristol,  where  the  average  paid  rose  UL3 
per  cent. 

The  most  difficult  place  to  obtain  a room 
was  Reading,  where  the  average  occupancy 
rate  was  78.6  per  cent,  and  the  easiest  the 
report  suggests,  was  Coventry,  where  it 
was  only  62  per  cent. 


Moscow  value 


Moscow'  hotels  are  notoriously  expensive  - 
but  travel  managers  and  agents  have  been 
negotiating  bigger  discounts  there  than  in 
any  other  leading  European  city. 

Comparing  rates  in  Deutschemarks, 
research  by  consultants  Arthur  Andersen 
shows  the  average  rate  per  room  in 
Moscow  last  year  was  DM537.94,  which  was 
34  per  cent  more  than  the  equivalent  figure 
for  London.  The  de  luxe  hotel  average  was 
DM6SQ.87  against  DM602.27  in  London.  But 
the  amounts  guests  actually  paid  were 
considerably  lower.  In  London  it  was 
reckoned  to  be  40  per  cent  lower  on  average 
than  published  rates.  In  Moscow  it  was  60 
per  cent. 


Marriott  to  have  new 
Heathrow  hotel 


Centre  for  Salzburg 


A new  hotel  is  scheduled  to  open  at 
London's  Heathrow  airport  in  early 
January.  Construction  of  the  390-room 
Marriott  has  begun  on  the  A4  Bath  Road. 
The  aluminium  and  glass  building,  which 
will  have  a 20-metre  high  atrium  forming 
the  main  lounge,  will  have  13  meeting 
rooms,  the  largest  of  which  win  hold  500 
delegates  in  theatre  style,  beauty  salon  and 
two  restaurants. 

When  it  opens,  the  chain  will  find  a new 
name  for  its  existing  Heathrow  Marriott, 
which  is  on  the  M4  at  junction  5. 


The  Austrian  city  of  Salzburg  is  to  get  a 
new  conference  centre.  Scheduled  to  open 
in  2001,  it  will  have  10  rooms  and  halls  with 
seating  for  groups  ranging  from  20  to  1,350 
delegates.  The  complex,  which  will  be  next 
to  the  Mlrabell  Gardens,  will  also  offer 
exhibition  space.  It  will  be  within  easy 
walking  distance  of  most  hotels  and  main 
tourist  sights,  such  as  Mozart’s  birthplace 
in  the  Getreldegasse. 


City  guides 


Perks  outside  the 
conference  halls 


Escaping  to  a conference  is  seen  by  many 
delegates  as  an  opportunity  for  a little 
drinking  and  perhaps  even  a little 


American  Express  Corporate  Services  is 
offering  handy  city  guide  booklets  which 
contain  a wealth  of  information  for 
business  traveller  and  tourist  alike.  The 
free  guides,  which  fit  easily  into  a pocket 
or  bag.  so  for  cover  Chicago.  London.  Milan 
and  New  York.  Details  from  American 
Express. 


Roger  Bray 


International  business  travel 
in  5 easy  steps 

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Ptetaa  help  u>  to  anprm  our 
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.□MnwoCii-aodau 

2.  How  many  employees  in  your  conpany7 

□ 1-24  D 25-99  □ 100-499 

O 500-989  □ 1.000+ 

3.  How  many  fly  intamatiDnafly  each  year? 

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art  occmrufy  mw  from  oo»«uaarq 

taw  tamal  burnt  *nd  alia  oBmti  our  enakmn 
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Completely  updated  monthly  on  CD-ROM 
or  floppy  disk.  OAG  FUgJODbb  gives  you 
instant  access  to  scheduled  travel 
iniomEUlon  in  the  office  and  while  you  are 
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ftUL  husinew  trip.  Vnh  OAtf  HalelDtsic.  you 
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Magic  eyes  monitor  minibars 


Roger  Bray  reports  on  how 
hotels  can  be  sure  his  favourite 
tipple  is  waiting  in  his  room 


To  many  business  travellers, 
tempted  to  go  a drink  too  for 
after  an  already  heavy  night 
the  mimbar  is  a horned  devil 
lurking  in  the  hotel 
bedroom.  Although  the  price 
of  Us  contents  are  usually 
higher  than  a rational 
person  would  contemplate, 
the  appeal  of  the  hotel 
minibar  shows  no  sign  of 

rifrninishir^. 

Evidence  suggests  that 
guests  are  increasingly 
likely  to  drink  the  mineral 
water  rather  than  the 
whisky.  However,  the  use  of 
computer  technology 
promises  to  boost  sales  by 
helping  hotel  managers  to 
cut  the  cost  of  monitoring 
consumption  and  to  reduce 
the  number  of  items  which 
slip  through  the  net,  often 
because  the  guest  has 
booked  out  before  staff  reach 
the  room. 

Technology  will  also  help 
hoteliers  determine  the 
preferences  of  particular 
nationalities  or  types  of 
guest  and  which  products 
rarely  sell.  It  is  likely,  for 
example,  that  members  of 
loyalty  programmes  will  find 
their  minibars  stocked  with 
items  which  they  consume 
regularly. 

The  Forte  hotel  group 
believes  that  guests  are 
using  minibars  more  than 
ever  before.  Hyatt  estimates 
that  minibar  purchases 
represent  about  5 per  cent  of 
its  food  and  beverage 
turnover.  It  says  customers 
spend  most  at  its  tropical 
hotels,  where  climate 
encourages  consumption  of 
cold  soft  drinks  and  beers 
and  revenues  average  about 
$9  per  room  bill.  Guests 
spend  the  least  at  airport 
hotels. 

Travellers  are  still  most 
likely  to  encounter  the 
familiar  "honour  bar", 
whose  contents  need  to  be 
checked  daily.  Automated 
bars  have  been  around  for 
some  time.  Originally,  they 
resembled  vending 
machines,  with  flaps  which 
guests  raised  to  remove  the 
products.  Critics  felt  they 
sent  the  wrong  message. 

“Basically,"  says  Mike 
McGowan,  business  develop- 
ment manager  with  Thom 
Business  Communications, 
which  provides  minibar  soft- 
ware, “they  said  *we  don’t 
trust  you’.” 

New-style  electronic  bars 
are  more  subtle.  When  a cus- 
tomer removes  a can  of  beer, 
for  example,  he  breaks  an 
infrared  beam.  That  sends  a 
message  to  a computer 
which  records  details  and 
automatically  adds  the  price 
to  the  Invoices.  The  upside 
for  guests  is  that  they  are 


disturbed  less.  One  US  man- 
ufecturer  claims  automated- 
bars  reduce  frequency  of 
room  checks  by  70  per  cent 

However,  there  are  disad- 
vantages- Depending  on  how 
they  are  financed,  they  can 
cost  upwards  of  GO  per  cent 
more  than  honour  bars.  And 
they  are  not  entirely  head- 
ache-free. The  hotel  manager 
must  decide  the  number. of 
seconds  that  will  elapse 
before  a sale  is  registered.  If 
no  time  lag  is  allowed,  will 
that  upset  guests  who  take 
out  wine  to  check  the  label, 
replace  it  without  removing 
the  cork  and  wind  up  with 
the  cost  of  it  added  to  their 
biDs? 

Suppose  a gap  of  20  sec- 
onds is  allowed.  Will  guests 
bother  to  check  their 
watches,  and  will  the  famil- 
iar arguments  of  yesteryear 
erupt  at  check-out? 

But,  in  the  eyes  of  many 
hoteliers,  the  advantages 
electronic  bars  promise  out- 
weigh such  objections.  These 
advantages  may  also  per- 
suade owners  and  operators 
of  more  modest  hotels  to  pro- 
vide them.  This  would 
reflect  widening  demand. 

Minibars  were  associated 
originally  with  five-star  lux- 
ury but  now  guests  at  four- 
star  properties  increasingly 
expect  to  find  them  in  their 
rooms.  Granada  is  even  con- 
sidering installing  them  in 
its  150-strong  UK  chain  of 
budget  Travelodges,  which 
are  usually  built  next  to  fast- 
food  outlets  but  which  - 
apart  from  a handful  - do 
not  have  restaurants  or  bars. 

Back  at  the  top  end  of  the 
market,  Hyatt  has  been  test- 
ing electronic  bars  at  two  of 
its  Paris  properties.  Frank 
Ansell,  international 
vice-president  for  food  and 
beverage,  says:  "The  equip- 
ment itself  is  expensive  but 
in  the  long  term  it  would 
save  a lot  of  money.  Not 
only  does  It  save  on  labour 
costs  because  staff  don’t 
have  to  go  around  checking 
what  has  been  taken  out,  we 
know  exactly  what  guests 
like  and  don't  like,  which 
makes  ordering  and  re-stock- 
ing mucb  more  efficient 

"The  computer  programme 
also  tells  us  automatically 
when  perishable  items  need 
to  be  replaced,  which  means 
there  is  no  chance  of  the 
time  expiring." 

Hoteliers  know  a fair 
amount  already  about  the 
preferences  of  particular 
nationalities.  The  Japanese 
used  to  like  beef  jerky 
but  appear  to  have  gone 
off  it  though  they  still  like 
dried  fish.  The  Europeans  go 
for  high  quality  Swiss  or  Bel- 
gian chocolate.  Americans 


Financial  Times  Surveys 


The  Business 
of  Travel 


Thursday 
November  19 


For  further  information 

please  contact: 


James  Burton  in  London 
Tel:  +44  171  873  4677 
Fax:  +44  171  873  3062 
email:  james.burton@FT.com 


FINANCIAL  TIMES 

No  FT,  no  comment. 


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ies and  a packet  of  M&Ms 
Peanuts  - and  cold  beers  are 
essential  wherever  the 
guests  come  from. 

Hotels  have  also  started 
including  less  predictable 
items  in  the  “dry"  compart- 
ment, such  as  disposable 
cameras  and  tights,  which 
could  be  a shrewd  move 
given  a recent  survey  which 
suggested  at  least  15  per  cent 
of  women  business  travellers 
had  needed  to  buy  them  in 
emergency  on  the  road. 

Frank  Ansell  estimates 
that  sales  of  mineral  water 
have  risen  10  to  15  per 
cent  over  five  years, 
partly  because  more  travel- 
lers use  hotel  exercise 
rooms  and  partly  because 
of  a general  increase  in 


health  consciousness. 

Hilton  lends  weight  to  the 
health  theory.  In  order  of 
preference,  the  five  drinks 
most  in  demand  from  its 
millibars  are  mineral  water. 
Coca-Cola,  orange  juice,  beer 
and  whisky: 

Heiko  Figge,  general  man- 
ager of  London's  four-star 
Mount  Royal  Thistle  on 
Oxford  Street,  agrees  that 
mineral  water  is  the  biggest 
seller  but  notes  that  mini- 
bars  also  produce  about  9 
per  cent  of  the  700-room 
hotel's  total  alcohol  sales. 

“They  can  be  a huge 
source  of,  profit  or  a 
huge  loss.  At  the  moment 
it  is  a bit  amateurish 
The  difficulty  is  to 
know  the  right  time  to  go 
into  a room  and  check  what 


has  been  consumed. 

“Either  the  guest  hasn’t 
finished  using  the  bar  or  it’s 
too  late  and  he  has  checked 
out.  Then  there  is  the  old 
story  - guests  claiming  they 
haven’t  consumed  some- 
thing. 1 would  say  that  for 
these  reasons  we  lose  about 
£1,500  a month.  If  we  didn't 
we  could  probably  bring 
minibar  prices  down  25  per 
cent.  That  is  why  we  are 
now  installing  mini  bars  with 
magic  eyes. 

"They  are  considerably 
more  expensive  but  the 
potential  wage  savings  are 
considerable.  If  you  have  97 
minibars  on  a floor  and  you 
know  that  40  of  them 
haven't  been  used,  that’s  40 
rooms  you  don't  need  to 
check.” 


Pure  Scandinavian 


Less  time 
more  choice 
to  Scandinavia 

§and  the 
Baltics 


H doubts 


Today  SAS  offers  you  a 
greater  choice  of  services  to 
Scandinavia  and  the  Baltics 

than  any  other  airline. 

More  than  190  non-mop 
flights  a week  to  six  major 
Scandinavian  cities,  plus  60 
connecting  services  lo  Riga, 
Tallinn  and  Vilnius,  via 
Copenhagen  or  Stockholm. 
Daily  departures  leave  from 
Heathrow  and  Manchester 
for  Aarhus,  Copenhagen, 
Gothenburg;  Oslo,  Stavanger 
and  Stockholm  - as  well  ae  a 
iwicc  daily  sendee  from 
Stanned  to  the  Swedish 

capital 

For  full  information,  call 
your  travel  agent  or  SAS  on: 

0845  60  727  727 
Internet:  hnp^Arwvtsasjc 


•-  kg. 


JOT 


SCANDINAVIAN  AIRLINES 


£*§&*-*■  ' 


-_i  .-gprfMav 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


~£:~7  *&% 


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fTiinibart  ‘Paradise’  starts  to  feel  the  pinch 

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v Average  occupancy  (%) 

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t 


A strong  pound  is  affecting  London’s  tourism 
trade,  writes  Scheherazade  Daneshkhu 


Booking  an  affordable  room  conference  hotels,  says 
In  London  at  short  notice  business  is  still  looking  good 
has  turned  into  something  of  but  ' that  persistent 
a challenge  in  recent  years,  -speculation  about  the  advent 
A strong  economy  and  .of  an  economic  recession  is 


hotel  prices  may  well  lave 
peaked  and.  that  business 


but  ‘ that  persistent  travellers  may  well  find 
speculation  about  the  advent  themselves  paying  lower 


relatively  little  supply  of  making  some 
new  hotels  have  contrived  to  nervous, 
make  London  a hotelier’s  “It  only  takes 
paradise.  percentage  points  to  make  a 

With  average  occupancy  big  difference,  and 
levels  approaching  65  per  occupancy  levels  are 
cent  and  a 9 per  cent  probably  a few  percentage 


an  economic  recession  is  hotel  prices  next  year.  . 
aking  some  hoteliers  “There  are  a lot  of  new 
srvous.  hotels  being  built  so  we  wDl 

“It  only  takes  one  or  two  see  more  supply  and  that 


increase  in  room  prices  last  points  lower  than  last  year,” 
year  to  over  £110,  according  he  says. 


to  Pannell  Kerr  Forster 
(PKF),  the  management 


The  pressure  on  prices  is 


combined  with  economic 
pressures,  will  lead  to  a 
reduction  in-occupancy  lev* 
els  and  a reduction  in  price.” 

The  larger  international 
business  hotel  chains  are 
also  exj^riencmg  more  corn- 


consultant  London  is  one  of  the  market,  according  to 
the  strongest  hotel  markets  Samantha  Ross,  strategic 


coming  from  the  top  end  of  petition  from  alternative 
the  market,  according  to  accommodation.  The  town 


in  the  world. 

“In  the  past  25  years 
hoteliers  have  never  had  it 
so  good,”  says  Stuart  May, 
chief  executive  of  PEITs 
hotel  consultancy  arm.  “Last 
year’s  occupancy  figure  has 
only  been  bettered  in  the 
years  surrounding  the 
Queen's  Silver  Jubilee  [1977 
and  1978]  but  in  real  terms 
the  achieved  rooms  yield 
and  room  rate  have  never 
been  higher.” 

There  are  signs,  however, 
that  the  London  market  may 
have  peaked.  A combination 
of  a strong  pound,  slowing 
demand  from  Asia  and  an 
increase  in  new  hotel 
building  is  beginning  to  put 
pressure  on  occupancy  rates. 

“Business  is  not  as  good  as 
last  year,"  gays  David  Levin, 
owner  of  The  Capital,  a 
48-room,  top-of-th e-market 
hotel  close  to  Harrods. 
“There  isn’t  any  question 
that  the  exchange  rate  is 
beginning  to.  hurt.  The 


pie,  has  grown  strongly  in 
response  to  demands  for 
value  for  money  and  a thirst 
for  a more  individualistic 
alternative  to  the  standard 
business  class  hotel. 

There  were  only  a handful 
of  London  town  house  hotels 
in  1990  but  the  number  has 
increased  to  about  30  today, 
according  to  Nigel  Massey,  a 
marketing  consultant.  He 
believes  that  corporate  room 
prices  at  town  house  hotels 
are  usually  up  to  20  per  cent 
cheaper  than  at  the  large 
international  business 
hotels. 

Another  development  has 
been  the  increased  availabil- 
ity of  budget  hotels.  These 
hotels,  offering  basic  accom- 
modation and  no  restaurant, 


are  more  usually  found 
along  Britain's  motorways. 
But  demand  for  simple, 
clean  accommodation  has 
made  the  sector  the  indus- 
try’s fastest-growing  seg- 
ment Travelodge,  Travel  Inn 


agent  and  surveyor,  believes 
that  developers  are  focusing 
on  hotel- building  instead  of 
serviced  accommodation, 
particularly  in  the  City. 
“Most  business  visitors  tend 
- often  through  the  lack  of 


and  Holiday  Inn  Express  suitable  alternatives  - to  use 


have  rapid  development 
plans  and  have  all  recently 
opened  hotels  in  London. 

Serviced  accommodation, 
while  still  limited,  is  also 
beginning  to  grow.  The 
recently-opened  Lexham  in 
Kensington  claims  its  luxury 
serviced  apartments  will 


West  End  hotels.”  says 
Frank  Harris,  the  owner. 
“There  is  undoubtedly  a 
need  for  hotels  in  the  City. 
However,  there  is  a desper- 
ate shortage  of  serviced 
fiats.  I hope  some  of  the 
developers  look  at  all  the 
plans  for  hotels  in  the 


‘ 60 

v j. 

\ 0 1 — ! — L_L 

19B9  . 91 


cost  business  travellers  half  Square  Mile  in  the  pipeline 


Samantha  Ross,  strategic  house  hotel  sector,  for  exam-  modation  and  no  restaura 
planning  analyst  at  The 
Travel  Company,  the 

business  travel  agency.  After  m ^ M 

siingj°?om^cSntbytis  i*  on  so  1 1 ci  at  i < 

year,  some  are  now  cutting 

back.  “Some  five-star  hotels  n . _ ■■■ 

have  pushed  through  Scheherazade  Daneshkhu, 

substantial  reductions,  it's  a ■ . ■ ■■ 

definite  trend.- she  says,  says  companies,  not  travellers, 


the  amount  they  might 
spend  at  a five-star  hotel  for 
a minimmw  stay  of  seven 
nights. 

Frank  Harris,  the  estate 


and  have  a rethink,  other- 
wise we  may  well  see  a lot  of 
empty  hotel  rooms  whil  the 
demand  for  serviced  flats 
continues  unmet" 


Consolidation  brings  loyalty  benefits 


definite  trend,”  she  says. 

The  strength  of  the  pound 
has  led  to  a fall  in  tourists 
visiting  the  UK  while  also 
reinforcing  the  perception 
that  London  is  expensive. 

That  perception  is  also  felt 
in  the  busbififlc -travel  sector, 
some  companies  are  showing 
increased  resistance  to 
paying  ever  higher  prices. 
“We  have  seen  corporations 
put  limits  oh  how  much  they 
are  prepared  to  spend  on 
accommodation  in  London," 
said  Kyle  Davis, 


seem  to  be  the  winners 


For  the  first  time,  guests 
staying  at  a Ramada  hntel 
have  recently  been  able  to 
use  the  same  hotel  loyalty 
scheme  when  staying  at  a 
Marriott  or  Renaissance 
hotel 

This  type  of  arrangement 
is  common  in  the  airline 
industry  where  there  are 
myriad  alliances  and  code- 
sharing agreements  but  it  is 


vice-president,  purchasing  a relatively  new  develop- 
management  group  at  raent  in  the  hotel  Industry. 


American  Express.  “That,  in 
itself,  forces  hotels  to  think 
carefully  about  their  room 
rates.  I expect  there  to  be 


pound  has  been  strong  for  a rates.  I expect  there  to  1 
while  but  it  takes  time  for  more  ceilings  set  this  year 
these  things  to  filter  Carolyn  Moore,- head  i 
through.  Although  hotel  consulting  at  Hoj 
occupancy  rates  are  Robinson,  the  business 
softening,  Mr  Levin  believes  travel  agent,  agrees  that 
room  prices  are  unlikely  to  more  companies  are 


In  the  case  of  Renaissance, 
Marriott  and  Rama  da,  the 
scheme  has  come  about 
because  all  three  rhahw  are 
part  of  the  same  group  fol- 


$25bn  worth  of  hotels 
changed  hands.  Starwood 
Lodging  Corporation,  a real 
estate  investment  trust, 
planned  to  change  its  name 
to  Westin  Hotels  and  Resorts 
after  acquiring  Westin 
Hotels,  a five-star,  US-based 
chain  last  year. 

But  the  pace  of  consolida- 
tion has  been  so  rapid  that 
the  idea  became  redundant 
after  Starwood  emerged  as  a 
white  knight  to  save  ITT, 
owners  of  the  Sheraton  hotel 


hotels,  from  the  luxury  new- 
ly-created St  Regis  brand 
down  to  Four  Points,  for 
merly  Sheraton's  mid-mar- 
ket brand.  This  is  broader 
than  Marriott’s  hotel  loyalty 
scheme  which  does  not  cover 
stays  at  its  Ritz-Carlton 
hotels,  though  Marriott  is 
debating  whether  to  include 
the  luxury  hotels  in  the 
same  scheme. 

Bass,  the  UK-based  brewer 
and  owner  of  Holiday  Inn 
hotels,  which  paid  £L7bn  to 
buy  Inter-Continental  hotels 
from  Japan’s  Saison  group 
earlier  this  year,  still  oper- 
ates two  separate  schemes. 

“While  the  two  hotel 
groups  are  being  integrated, 
it  is  our  intention  to  retain 


tons  outside  the  US,  also 
operate  a single  loyalty 
scheme  as  part  of  a market- 
ing alliance  struck  in  1996 
after  failing  to  agree  merger 
terms. 

Consolidation  is  being 


ent  standards  across  a wider 
range  of  hotels;  they  will 
have  access  to  more  hotels 
when  they  dial  a single  res- 
ervations number  and  they 
will  be  offered  alternative 
hotels  in  the  group  if  the  one 


driven  by  economies  of  they  want  to  stay  in  is  full, 
scale,  according  to  Stan  The  last  two  arguments  - 


chain  from  the  clutches  of  Holiday  Inn’s  Priority  Club 


Carolyn  Moore, -head  of  lowing  Marriott's  $lbn  pur- 
bo  tel  consulting  at  Hogg  chase  last  year  of  the  Hong 


drop  this  year.  “But  the  tightening  their  belts.  “We 
scene  will  change  from  next  have  seen  a dip  in  the 


spring:  There  are  a lot  more 
hotels  coming  cm  than  one 
appreciates."  • 


number  of  suites  being 
booked  and  the  feedback  we 
are  getting  is  that 


David  Michels,  chief  corporations  are  being 
executive  of  Stakis,  which  careftil  about  how  they  are 


owns  the  Stakis  Metropole, 
one  of  London’s  largest 


spending  their  money." 

She  believes  that  London 


Kong-based  Renafssance 
hotel  group,  which  includes 
Rama  da  and  New  World 
hotels. 

A muimmi  loyalty  scheme 
is  one  of  the  few  tangible 
benefits  to  business  travel- 
lers of  the  frenetic  consolida- 
tion in  the  hotel  industry 
which  may  have  left  some 
business  travellers  bemused. 

Last  year,  more  than 


Hilton  Hotels  Corporation, 
by  outbidding  HHC.  While 
acknowledging  that  Star- 
wood itself  is  not  a brand, 
the  group  has  renamed  itself 
Starwood  Hotels  and  Resorts 
as  the  umbrella  for  its 
brands,  which  include  the 
newly-created  W Hotels 
aimed  at  younger  business 
travellers  and  designed  to 


and  Inter-Continental's  Six 
Continents  club,"  says  Bass. 
“They  are  different  schemes. 
Six  Continents  Is  a guest  rec- 
ognition scheme,  giving  ben- 
efits such  as  upgrades  and 
early  check-in,  whereas  Pri- 
ority club  is  points- based. 


Bruns,  Marriott’s  senior 
vice-president  for  the  UK, 
Middle  East  and  Africa.  “We 
can  leverage  our  manage- 
ment expertise  if  we  can 
have  critical  mass  in  any 
area."  he  says. 

The  benefits  of  consolida- 
tion to  hotel  groups  are 
clear.  Buying  another  hotel 
group  allows  companies  to 
make  savings  by  reducing 
back  office  costs.  It  also 
makes  them  more  competi- 
tive in  an  increasingly  global 
market  by  enabling  them  to 
offer  business  travellers  one 
of  their  - hotels  in  most  parts 
of  the  world. 

If  the  benefits  to  individ- 
ual companies  are  dear,  it  is 
less  obvious  what  the  advan- 


There  are  no  immediate  iages  are  for  bumness  travel- 
plans  to  integrate  them  but  lers.  After  all.  no  one  is 


it  will  he  something  we  will 


capitalise  on  the  success  of  be  considering  over  the  next 
boutique  hotels  such  as  few  years  ” 


those  operated  by  lan  Schra- 
ger. 

. . Starwood’s  hotel  loyalty 
scheme  applies  to  aU  its 


The  US-based  Hilton 
Hotels  Corporation  and  Lad- 
broke,  owner  of  Hilton  Inter- 
national, wind)  operates  Hil- 


promising  that  the  cost 
savings  will  be  passed  on  to 
guests  in  the  form  of  lower 
hotels  prices. 

Many  of  the  enlarged  com- 
panies say  their  guests  will 
now  be  able  to  enjoy  consist- 


the  opportunity  to  increase 
room  sales  - still  sound 
more  advantageous  to  the 
hotel  company  than  to  their 
guests. 

And  altbough  many 
groups  promise  consistency, 
the  reality  often  falls  shot 
of  the  delivery.  Inconsisten- 
ries  can  arise  due  to  the  age 
of  individual  properties  or 
the  difference  in  their  own- 
ership structure.  Some 
hotels  are  wholly  owned  by 
tiie  chains,  some  are  oper- 
ated under  management  con- 
tract and  others  can  be  oper- 
ated under  a franchise 
arrangement 

Some  hotel  groups  say 
they  w01  not  go  down  the 
franchising  route  because  of 
the  relative  lack  of  control 
over  the  final  product  Holi- 
day Inn.  which  has  expanded 
mainly  through  franchising, 
says  it  regularly  reviews  its 
portfolio  to  eliminate  those 
hotels  which  are  not  operat- 
ing to  the  required  standard. 
It  typically  kicks  out  5 per 


cent  of  its  franchisees  out  of 
Its  operations  annually. 

Inconsistencies  and  mis- 
matched expectations  can 
also  arise  If  the  branding  is 
not  clear.  Business  travellers 
may  expect  a Four  Points  to 
offer  the  same  standard  as  a 
Sheraton  or,  conversely,  may 
associate  a Crowne  Plaza 
with  a mid-market  Holiday 
Inn  - one  reason  why  Bass 
decided  to  remove  the  Holi- 
day Inn  name  from  its  more 
upmarket  Crowne  Plaza 
hotels.  Hie  scope  for  confu- 
sion is  even  greater  now  that 
the  large  chains  are  trying 
to  integrate  more  brands. 

Ralph  Giannola,  vice-presi- 
dent for  consumer  market- 
ing at  Marriott,  says  care  is 
taken  to  segment  the  brands 
through  different  pricing 
and  service  levels  but  that 
the  Marriott  name  should 
convey  certain  core  values, 
including  cleanliness  and 
consistency  across  the  sub- 
brands. 

And  fears  of  falling  stan- 
dards as  a result  of  consoli- 
dation are  naturally  dis- 
missed by  all  hotels  groups. 
In  the  case  of  Ritz-Carlton, 
Marriott  has  allowed  the 
operation  to  be  run  by  a sep- 
arate business  team,  which 
should  preserve  its  distinct 
character,  says  Mr  Giannola. 


THAMESLINK 


Bedford  • 
Flitwick  • 
Harlington  • 
Leagrave  • 
Q Luton  • 
Harpenden  • 

St  Albans  • 


CARLSON  Y7L 

O'-  l-.:  ‘ 


Radlett < 


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Mill  Hill  Broadway  i 
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West  Hampstead  Thamesfink  '•'* 
Kentish  Towiti 


Any  doubts  about  selection? 


umntuafuTH 


As  all  canny  travel  managers  know,  sometimes 
the  easy  route  isn’t  the  best  one.  Selecting  a big 
name  to  keep  things  good  and  tight  sounds  like 
a simple  and  straight  forward  choice,  doesn’t  it? 
But  what  happens  when  they  fail  to  live  up  to 
their  promise?  When  they  just  don’t  seem  to 
understand  exactly  what  you  need?  Your  decision 
can  quickly  land  you  in  some  trouble. 


praised  for  its  nationwide  network  of  offices 
and  global  strength  from  over  4,000  locations 
worldwide.  Most  importantly,  we  possess  the 
attitude  and  approach  that  ensures  we  score 


where  others  don't. 


Port  man  are  No  4.  We’re  different.  And  we’re 
good.  This  means  that  today  more  and  more 
companies  are  putting  our  name  first  on  the 
sheet  when  it  comes  to  choosing  an  effective 
travel  management  service. 


How  many  times  have  so-called  ’big  signings' 
failed  to  perform?  Exactly.  Perhaps  it's  time  to 
select  the  only  player  who  can  consistently  take 
on  the  rest  - and  beat  them. 


Pick  the  right  team.  Speak  to  Portman. 


We  enjoy  being  at  the  centre  of  things  when 
controlling  our  clients'  travel  spend.  As  the 
UK’s  largest  independent,  we  are  used  to 
having  a strong  influence  with  all  the  major 
travel  carriers.  And  our  distribution  is  rightly 


Call  Lesley  or  Brian  on  0800  731 1627 
E-mail:  Icollins6portmantravel.co.uk  or 
blawlerOportmant  ravel  -Co.  uk 


Q 

PORTMAN 


ThainesnnJr 


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Up  to  4 trains  an  hour.  From  as  little  as  £1 0.20  return. 

THAMESLINK 


in  a league  of  our  own 


From  London  Bridge.  Please  check  specific  train  tunes 
by  ringing  National  Rail  Enquiries  on  0345  48  49  50. 


IV 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1 998 


E BUS 


OF  TRAVEL  4 


Car  hire 


Going  Green  and  friendly 


Tony  Walker  reports  from  the 
US  on  moves  to  replace  the 
internal  combustion  engine 


Envlronmentally-friendly 
vehicles,  from  electric- 
powered  bicycles  to 
zero-emission  cars,  are 
on  the  way  in  the 
US  for  discerning  travellers, 
but  the  high  cost  of  these 
vehicles  is  a constraint  bn 
rental  companies  offering 
such  options  for  the 
moment 

The  “big  three”  US  auto- 
motive manufacturers  and 
their  Japanese . counterparts 
have,  however,  joined  battle 
to  produce  the  first  mass 
market  electric-powered 
sedans:  widespread  availabil- 
ity of  vehicles,  which  meet 
stringent  new  emission  tests 
such  as  those  introduced  in 
California  is.  it  seems,  just 
around  the  corner. 

Indeed,  no  less  a pillar  of 
the  automotive  industry 
than  John  (Jack)  Smith, 
chairman  of  General  Motors, 
hinted  recently  at  the  death- 
knell  of  the  internal  combus- 
tion engine.  “No  car  com- 
pany will  be  able  to  thrive  in 
the  2lst  century  solely  with 
the  internal  combustion 
engine,'’  Mr  Smith  told  the 
North  American  Interna- 
tional Auto  show  in  Detroit 

California  has  taken  the 
lead  in  driving  car  manufac- 
turers towards  a once-dis- 
tant  horizon  by  requiring  2 
per  cent  of  cars  sold  in  the 
state  this  year  to  have  zero- 
emissions,  rising  to  10  per 
cent  by  2003.  Other  states, 
including  New  York,  are  fol- 
lowing suit 

In  the  meantime,  electric- 
powered  vehicles  are  becom- 
ing the  norm  in  tourist  loca- 
tions around  the  country: 
Washington  regulators  are 
fuelling  the  process  by  creat- 
ing a new  category  of  “low- 
speed"  vehicles,  (top  speeds 
of  20  to  25mph)  which  are 
exempt  from  rules  governing 
automobiles  such  as  the 
requirement  for  airbags. 

'nils  step  will -prove 


try  which  is  relying  increas- 
ingly on  so-called  “putt- 
putts”,  from  golf  carts  to 
low-powered  transit  vehicles. 
It  Is  estimated  that  400,000 
such  vehicles  are  cruising 
resorts  and  retirement  com- 
munities in  the  US,  offering 
a silent,  non-polluting  and 
safer  alternative  to  regular 
automobiles. 

Gary  Purcell,  senior  proj- 
ect engineer  for  the  Electric 
Power  Research  Institute 
(EFRI)  based  in  Palo  Alto, 
California,  describes  growth 
in  the  market  for  electric- 
powered  vehicles  as  “expo- 
nential". 

Development  of  battery 
technology  is  the  main  con- 
straint, he  says,  but  con- 
cerns about  global  warming 
and  a likely  increase  in  oil 
prices  as  reserves  peak  are 
accelerating  the  search  for 
affordable,  non-polluting 
vehicles. 

Karl  Ttudemann,  director 
of  marketing  for  Solectria 
Corporation  of  Wilmington. 
Massachusetts,  manufac- 
turer of  electric-powered 
vehicles,  says  a booming 
tourism  sector  in  which 
“eco- tourism"  is  an  increas- 
ingly important  element  is 
providing  rich  opportunities 
for  enviroimien  tally -friendly 
vehicles. 

Mr  Thidemann  cited  a 
recent  case  of  the  conversion 
of  a a diesel-powered  tram  to 
electric  power  at  a Maryland 
nature  reserve.  Animals 
which  had  previously  run 
away  at  the  approach  of  the 
noisy  diesel-powered 
vehicles  were  now  relatively 
untroubled  by  the  electric 
version. 

He  said  that  at  this  stage 
larger  vehicles  such  as  buses 
provided  his  company  with 
one  of  its  better  commercial 
opportunities:  cumbersome 
battery  units  were  more  suit- 
able to  larger  vehicles. 


(tone  are  the  days  of  smofcey  tfiesel;  LPG-powared  vans  we  now  avaHaWe 

Rental  companies 
take  the  eco 

Amort  Cohen  finds  no  loss  of 
performance  behnd  the  wheel 
of  a car  running  on  LPG 


Toyota's  Priua  combines  the  technologies  of  internal  combustion  eglne  and  electric  power  Photo:  ap 


. . _ . a Scho^l^buses,  .which 

boom  to  the  tourism  Indus-  tended  tcf  spend  long  periods 


idle  and  needed  only  limited 
range,  were  good  candidates. 
Electric-powered  buses,  as 
opposed  to  hybrid  vehicles 
which  combine  electric  and 
gasoline-powered  engines, 
have  a range  of  about  60  to 
70  miles. 

In  recognition  of  the  trend 
towards  “green  vehicles" 
automobile  manufacturers 
are  spending  hundreds  of 
millions  of  dollars  on 
research  and  development. 
Honda,  for  example,  intro- 
duced an  experimental  EV 
Fins  electric  vehicle  in  Calif- 
ornia last  year  which  pro- 
duces no  emissions,  but  suf- 
fers from  the  constraint  of 
relatively  high  cost. 

Toyota  is  leading  in  the 
development  of  an  envlron- 
mentally-friendly sedan:  its 
Prius  model  on  sale  in  Japan 


is  powered  by  a “hybrid  pow- 
ertrain” of  electric  motor 
and  gasoline-fuelled  auxil- 
iary. but  the  company 
admits  It  is  losing  money  on 
these  vehicles  which  are 
about  the  same  size  as  a 
Corolla  but  cost  about  twice 
as  much  to  build. 

General  Motors  has  been 
experimenting  with  its  EV1 
electric  car,  but  it  has 
proved  a slow  seller.  Like 
Toyota  with  its  Prius.  GM 
has  been  obliged  to  subsidise 
sales  in  an  effort  to  get  the 
public  used  to  the  idea.  The 
company  expects  to  have  a 
“hybrid”  on  the  market  at 
an  attractive  price  by  2001. 

Ford  and  Chrysler  are  also 
pushing  ahead  with  plans 
for  low  or  zero  emission 
vehicles:  Both  expect  to  have., 
such  products  available  by 


early  next  century. 

In  the  meantime,  it  is  nim- 
ble companies  such  as  Bom- 
bardier which  are  making 
the  running  in  pursuit  of 
niche  markets.  It  was  the 
Canadian  company  which 
persuaded  the  National 
Highway  Traffic  Safety 
Administration  in  Washing- 
ton to  approve  its  neighbour- 
hood vehicle  (NV)  mini-car 
for  limited  road  use. 

Bombardier’s  dream  is  to 
capture  the  US  market  for 
second  cars  such  as  those 
used  by  rail  commuters  to 
travel  between  home  and 
station.  The  company  esti- 
mates that  the  market  for 
"second  cars"  is  around  20m. 
“Green  cars”  as  neighbour- 
hood vehicles  and  for  travel 
mid  tourism,  are,  its.  seems, 
about  to  take  oft 


If  you  want  to  be  a truly 
environmentally-friendly 
traveller,  hire  a horse  or 
charter  a yacht.  Should 
neither  of  these  alternatives 
prove  practicable  for 
business  purposes,  try  car 
rental,  a sector  busily 
reinventing  itself  as  a Green 
option  for  the  eco  road 
warrior. 

Company  cars  are  facing 
increasingly  punitive  taxa- 
tion, leading  businesses  to 
reduce  their  in-house  pools 
and  hand  over  any  excess 
requirements  to  rental  This 
helps  to  reduce  the  total 
number  of  cars  on  the  road, 
as  does  car  sharing.  Some 
companies  are  leasing 
vehicles  - particularly 
“people-movers"  - which  are 
used  to  ferry  workers 
between  home  and  their 
workplace. 

Personal  car  travel  has 
also  been  ‘Greened*.  Hertz 
has  for  a couple  of  years 
operated  car  clubs  in  more 
than  a dozen  European  cities 
aimed  at  making  car  hire 
financially  preferable  to  per- 
manent ownership.  Members 
buy  vouchers,  enEQing  them 


to  make  priority  bookings  at 
preferential  rates. 

It  is  now  possible  to  hire 
vehicles  that  run  on  environ- 
mentally-friendly fuels.  Bud- 
get Rent  a Car  is  leading  the 
way  with  liquid  petroleum 
gas  (LPG),  ethanol,  methane 
and  electric  cars  in  assorted 
markets.  Hertz  has  also 
dipped  its  toe  Into  the  mar- 
ket with  electric  cars  in 
Stockholm  and  Gothenberg. 

Budget's  director  of  sales 
and  marketing  for  Europe, 
the  Middle  East  and  Africa, 
Paul  Johnson,  insists  that 
‘Green*  cars  are  not  a mar- 
keting gimmick.  “There  is 
genuine  consumer  demand," 
he  says.  “I  think  cars  with 
LPG  will  become  the  norm. 
They  have  significantly 
smaller  carbon  monoxide 
emissions  and  are  cheaper  to 
run.  We  rent  them  for  the 
same  price  as  gasoline-pow- 
ered cars  and  their  perfor- 
mance is  exactly  the  same." 

I can  confirm  this  latter 
statement,  having  test- 
driven  one  of  Budget’s  con- 
verted Ford  Mondeos,  which 
are  available  at  some  loca- 
tions in  the  UK  aid  France. 


The  only  difference  1 noticed 
was  that  the  engine  seeined 
quieter.  - ;ir‘ 

The  car  had  a conven- 
tional unleaded  petrol  tank 
as  well,  so  the  driver  can 
switch  when  the  LPG;  tank 
runs  dry.  This  is  just  as  well, 
since  the  number  of  petrol 
stations  offering  LPG 
remains  limited  - probably 
fewer  than  100  in  the  UEL 

Even  so,  the  other  statis- 
tics are  impressive:  an  LPG 
vehicle  emits  80  per  cent  less 
carbon  monoxide  and  nifro- 
gen  monoxide  than  petrol 
and  in  the  UK  is  one-third 
cheaper  to  run  per  mile. 

Budget’s  French  operation 
has  electric  Renault  CQos 
and  Citroen  AXs  at  four 
locations  in  central  Paris. 
The  cars  run  on  nickel  cad- 
mium batteries,  emit  no  nox- 
ious fumes  and  are  four 
times  cheaper  to  run  than 
petrol-powered  vehicles. 
Recharging  is  not  a problem 
either,  since  Paris,  has.  220 
recharging  points. 

Rentals  start  at  FFr299  per 
day  .whereas  a comparably- 
sized  conventional  car  would 
cost  FF485.  However,  electric 
cars  do  have  severe  limita- 
tions. The  Clio's  top  speed  is 
60mph  and  the  car  has  a 
range  of  only  45  to  55  miles 
before  recharging  , Is 
required; 


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- i 


THE  BUSINESS  OF  TRAVEL  6 


Air  travel 


Meet  me  in 


Islamabad 


Baggage  from  state  corporation  days  has  been 
left  behind.  Michael  Skapinker  reports 


Dirty  tricks,  cabin  crew 
strikes,  ethnic  tailfins:  Brit- 
ish Airways  has  been  buf- 
feted by  more  controversies 
over  the  past  few  years  than 
it  might  care  to  remember. 

But  to  walk  into  BA’s  new 
£200m  HQ  near  London's 
Heathrow  airport  is  to  lay 
aside  all  doubt  about  the  air- 
line's sense  of  purpose.  This 
Is  a world  class  building: 
only  a professional  malcon- 
tent or  architectural  illiter- 
ate could  say  otherwise. 

Stroll  around  the  fountain 
in  the  forecourt,  through  the 
limestone-clad  entrance,  and 
you  enter  a world  of  light 
and  space.  A cobbled  lane, 
shaded  with  olive  and  fig 
trees,  stretches,  under  a vast 
glittering,  glassed  ceiling, 
past  shops,  florists  and  side- 
walk caffes. 

Along  the  way  you  can 
drop  in  at  the  open  learning 
centre  where  you  can 
improve  your  Spanish  or 
mug  up  on  aircraft  safety 
procedures. 

At  the  end  of  the  lane, 
beyond  the  building's  glass 
edge,  is  an  artificial  lake. 
And,  beyond  that,  is  a 240- 
acre  public  park,  built  on 
what  was  once  a dump  for 
domestic  rubbish.  BA  says  it 
is  the  largest  public  park 
created  in  London  this  cen- 
tury. 

When  the  cafe  palls,  staff 
can  retire  to  the  canteen  or 
the  formal  restaurant,  both 
overlooking  the  lake.  They 
can  take  their  "intelligent" 
cordless  telephones  with 
them,  if  they  do  not  mind 
being  disturbed. 

It  does  not  look  as  though 
they  would.  Everyone  looks 
pretty  relaxed,  thanks,  per- 
haps. to  the  Feng  Shui 
expert  who  was  consulted 


about  where  everything 
should  be  or  to  the  modem 
art  and  sculpture  adorning 
the  floors  and  walls. 

Welcome  to  Waterside. 
This  is  tbe  name  wbich  the 
2,800  people  who  work  there 
voted  for  In  an  electronic 
poll.  As  the  alternatives 
were  British  Airways  at  Har- 
monds  worth,  the  Global  Vil- 
lage and  Speedbird  Centre, 
the  choice  was  perhaps  not  a 
difficult  one. 

The  name  Speedbird  Cen- 
tre, in  particular,  must  have 
sent  a chill  through  many  of 
the  electronic  voters.  BA's 
old  headquarters  building 
was  called  Speedbird  House. 
Visiting  it  was  enough  to 
spoil  your  day.  A classic  gov- 
ernment-owned dump, 
Speedbird  House  was  sur- 
rounded by  razor  wire.  Visi- 
tors were  told  to  report  to  a 
gatehouse,  which  could  have 
done  service  at  the  Berlin 
Wall.  Heaven  knows  what  it 
must  have  been  like  to  work 
there. 

Waterside,  which  began 
filling  up  earlier  this  year, 
demonstrates  how  much  our 
notions  of  work  have 
changed  in  the  50-odd  years 
since  Speedbird  House  first 
opened  its  doors.  It  also 
shows  how  much  BA  has 
changed  - or  is  trying  to. 

As  a state-owned  com- 
pany.  BA  used  to  share  a 
civil  service  state  of  mind. 
Some  of  its  managers  and 
employees  complain  that  in 
its  hierarchies  and  bureau- 
cracies it  behaves  as  If  it  still 
does. 

Waterside  Is  an  attempt  to 
get  away  from  all  that.  "The 
philosophy  Is  to  be  open, 
informal,  less  hierarchical," 
says  Chris  Byron,  the  build- 
ing's project  director.  “I’m 


Arresting  violence 
in  the  cabin 


Drunken  passengers  are  the  cause  of  many 
serious  incidents,  writes  Michael  Skapinker 


The  headlines  make 
dramatic  reading,  "Ex-model 
jailed  for  in-flight  mayhem," 
says  one.  "Hooligan  jet 
attack  woman  jailed  for  two 
years,"  screams  another. 
"Drunken  passenger  Jailed 
for  nine  months  for  aircraft 
head-butt  rampage,"  yells  a 
third. 

Airlines,  night  attendants 
and  police  worldwide  arc 
unanimous:  violent  Incidents 
Involving  passengers  are 
Increasing  and  something 
must  be  done  about  It. 

Guy  Gardner,  a senior  offi- 
cial of  the  US  Federal  Avia- 
tion Administration,  told  a 
Congressional  committee 
earlier  this  year:  “There 
appears  to  have  been  a 
marked  increase  in  the  num- 
ber of  passenger  interference 
cases  over  the  past  several 
years.” 

In  the  UK,  Tom  Brake  MP. 
the  Liberal  Democrats’  avia- 
tion spokesman,  said  the 
number  of  serious  incidents 
Involving  drunken  passen- 
gers had  “soared"  from  13  in 
1993  to  62  in  1997. 

That  Is  a large  increase, 
but  Farrol  Kahn,  director  of 
the  Aviation  Health  Institute 
in  the  UK.  warns  against 
over-reaction.  Compared 
with  the  number  of  flights 
taking  off  and  landing  each 
day,  the  level  of  on-board 
violence  is  tiny.  “It's  been 
blown  out  of  proportion."  he 
says. 

It  is  certainly  true  that  the 
only  violence  most  travellers 
are  likely  to  witness  is  on 
the  in-flight  movie.  But  the 
reports  of  those  incidents 
that  do  occur  suggest  that 
they  are  frightening  to  all 
those  involved.  Violence  in 
an  enclosed  space  thousands 
of  feet  in  the  air  is  far  more 
threatening  than  the  same 
Incident  on  a city  street  And 
there  is  always  the  fear  that 
in-flight  disturbances  could 
compromise  the  safety  of  the 
flight 

The  three  headlines  above 
all  concerned  Incidents  on 
British  Airways  flights.  The 
first  occured  on  a flight  from 
Manchester  la  New  York  in 
which  the  ex-model  involved 
assaulted  at  least  two  flight 
attendants  and  abused  all 
those  who  tried  to  restrain 
her.  She  had  drunk  cannabis 
tea  before  the  flight  and  con- 


sumed two  mini-bottles  of 
champagne  and  wine  on 
board.  Her  lawyer  told  the 
court  that  she  was  deeply 
embarrassed  by  what  she 
had  done  and  said,  in  miti- 
gation, that  she  had  suffered 
from  a series  of  personal 
problems. 

The  second  case,  which 
occurred  on  a flight  from 
Montreal  to  London, 
involved  a passenger  who 
had  drunk  three-quarters  of 
a bottle  or  wine  before 
boarding  the  flight  and  took 
her  own  bottle  of  whisky  on 
to  the  aircraft  She  was  also 
taking  anti-depressants  and 
antibiotics.  After  abusing 
passengers  and  staff,  she 
severely  assaulted  the  police- 
man who  boarded  the  air- 
craft at  London's  Heathrow 
airport  to  arrest  her.  Once 
again,  her  lawyer  told  the 
court  she  deeply  regretted 
what  she  had  done. 

In  the  third  case,  a 
drunken  passenger's  behav- 
iour was  so  violent  that  the 
aircraft  was  forced  to  make 
an  emergency  landing  at 
Heathrow.  The  passenger 
head-butted  and  kicked  two 
BA  Flight  attendants.  It  took 
10  restraints  to  keep  him  In 
his  seat  Staff  had  to  sit  with 
him  during  the  rest  of  the 
journey  so  that  the  number 
attending  to  the  other  pas- 
sengers fell  below  that 
required  by  safety  regula- 
tions. 

The  airlines  and  regula- 
tors have  no  doubt  about 
what  needs  to  be  done  in 
cases  such  as  these.  National 
authorities  have  to  be  pre- 
pared to  prosecute  and 
courts  need  to  be  ready  to 
Impose  custodial  sentences. 

The  FAA's  Mr  Gardner 
says:  “We  believe  that  highly 
publicised  criminal  prosecu- 
tion of  these  cases  will  serve 
as  the  best  deterrent  in  this 
area."  But  the  FAA  believes 
that  Imposing  financial  pain 
on  disruptive  passengers 
through  civil  actions  will 
help  too. 

“In  addition  to  criminal 
charges,  the  FAA  may  pro- 
pose penalties  of  up  to  81,100 
per  violation  for  interfering, 
with  a crew  member  on  a 
domestic  flight,”  says  Mr 
Gardner.  “In  1997,  284  civil 
penalty  cases  involving  pas- 
senger interference  with 


crew  members  were  initiated 
by  FAA's  legal  offices.  Dur- 
ing that  same  period,  $73,150 
in  civil  penalties  were 
assessed.  In  one  case,  the 
FAA  recommended  a $16,500 
civil  penalty  against  a pas- 
senger who  assaulted  a 
flight  attendant.  The  civil 
penalty  in  this  case. ..was 
for  multiple  instances  of 
crew  Interference." 

However,  Mr  Kahn  says 
excessive  concentration  on 
criminal  and  civil  action 
against  disruptive  passen- 
gers is  not  enough.  “It’s 
treating  the  symptoms,  not 
the  causes,"  he  says. 

The  first  point  that  air- 
lines and  regulators  need  to 
focus  on  is  alcohol:  In  almost 
every  case  of  violence,  the  ; 
disruptive  passenger  is  i 
drunk.  Mr  Kahn  says  air  I 
travellers  need  better  educa-  | 
Hon  on  the  effect  of  drinking 
on  an  aircraft.  A few  drinks 
In  the  air  have  a much  more 
powerful  effect  than  the 
same  alcohol  intake  on  the 
ground. 

Drinking  restricts  the 
amount  of  oxygen  to  the 
brain.  Flying  does  the  same, 
exacerbating  the  effect  of  the 
alcohol.  “Any  drug  we  take 
during  a flight  has  tbe  same 
effect.  Unfortunately,  people 
are  not  aware  of  that  and 
they  need  to  he  warned 
about  it,"  says  Mr  Kahn. 

Airlines  should  place  an 
information  sheet  about  the 
effect  of  drinking  during 
nights  In  the  seat  pockets  of 
the  aircraft,  he  says,  so  that 
passengers  see  them  when 
they  reach  for  the  in-flight 
magazine  or  the  catalogue  of 
duty-free  goods. 

He  says  some  airlines  have 
also  understood  the  impor- 
tance of  staff  training. 
Potentially  violent  passen- 
gers can  be  calmed  down  if 
trained  staff  deal  with  them 
soon  enough.  Staff  also  need 
more  training  in  when  to 
refuse  passengers  drinks  on 
board. 

Mr  Kahn  dtes  the  case  of 
an  international  hotel  group 
which  has  instructed  bar 
staff  to  refuse  to  serve 
guests  who  have  already  had 
too  much  to  drink.  He  says 
that.  In  many  cases,  the 
shame-faced  guests  appear 
the  next  morning  to  thank 
the  staff  involved. 


FINANCIAL,  TIMES  THURSDAY  SEPTEMBER  HI  1998 




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, fieri 


1* 


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not  saying  totally  unhierar- 
chicaL  but  flatter,  and  sup- 
portive of  continuous  learn- 
ing." 

Is  it  less  hierarchical? 
There  is  an  executive  wing 
at  Waterside,  which  is 
smarter  than  the  rest  of  the 
building  - although,  in  fair- 
ness, the  bosses  have  not 
given  themselves  the  best 
view.  From  where  they  sit 
they  can  see  the  motorway. 

Like  everyone  else  the 
senior  executives  work  In 
large  spaces  which  cannot 
be  called  offices.  Lord  Mar- 
shall, BA's  chsinTiHTii  is  the 
only  person  in  the  building 
who  has  anything  resem- 
bling an  office.  Robert  Ayl- 
lng.  the  chief  executive,  has 
what  looks  like  a lounge 
suite  and  a dining  room 
table  In  an  open  area. 

Everyone  else  at  Waterside 
works  at  desks,  a little  too 
dose  for  comfort,  in  large 
open  plan  rooms.  Much  has 
been  made  of  the  "hot  desk- 
log"  at  Waterside.  I tell  Mr 
Byron  that  I have  my  doubts 
about  people  arriving  in  the 
morning,  grabbing  the  near- 
est desk  and  starting  work. 
“Surely  the  human  nest- 
building  instinct  is  too 
strong  for  that?  Even  in  an 
open-plan  office,  people 
immediately  mark  their 
spaces  with  family  photo- 
graphs and  books  on 
shelves." 

Actually,  he  says,  only  800 
of  the  Waterside  staff  do  not 
have  their  own  desks.  These 
are  mostly  marketing  and 
sales  people  who  spend  most 
of  their  time  on  the  road. 
Staff  visiting  from  abroad 
also  sit  at  whatever  desk 
they  like.  Everyone  else  has 
their  own  space. 

But  when  visitors,  con- 


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Waterside  BA's  £200m  now  HO  MW  Heathrow  was  designed  to  reproduce  the  atmosphere  of  an  English  village 


tacts  or  clients  arrive,  most 
BA  staff  prefer  to  meet  them 
at  one  of  the  caffes  in  the 
atrium.  In  creating  the  cen- 
tral glassed  lane,  with  the 
offices  on  each  side,  the  Nor- 
wegian architect  Mels  Torp 
wanted  to  reproduce  the 
atmosphere  of  an  English 
village,  with  its  high  street, 
shops  and  houses. 


It  looks  more  Italian  to 
me,  I tell  Mr  Byron.  “I  take- 
that  as  quite  a compliment." 
he  says.  This  was  the  other 
message  that  Waterside  is 
supposed  to  get  across:  that 
BA  is  an  international  com- 
pany. The  different  parts  of 
the  building  are  named  after 
continents  or  regions: 
Europe,  Americas,  Africa, 


Australasia.  Asia  and,  in 
case  that  leaves  anyone  out. 
Orient. 

The  private  meeting 
rooms,  of  which  there  are 
many,  are  named  after  cities 
in  each  of  the  regions:  you 
ran  plan  strategy  in  Islama- 
bad or  gossip  about  the  man- 
agement in  Rio  de  Janeiro. 
These  names  sound  the 


only  contrived  note.  BA 
people  surely  need  no 
reminding  that  they  work 
for  an  international  com- 
pany. Bumping  into  the 
Cyprus  PR  manager  outside 
the  caffe  or  preparing  for  a 
meeting  of  BA’s  Africa  man- 
agers will  surely  do  that 
But  these  are  quibbles. 
Waterside  looks  like  a good 


place  to  work.  And  its  open 
ing  raises  an  Intriguing 
question.  How  will  it  be 
viewed  50  years  on?  What 
will  we  understand  about 
work  then  that  we  do  not 
know  now?  Will  Waterside 
seem  as  anachronistic  as 
Speedbird  House  does  today? 
Undoubtedly.  But  have  a 
caffe  latte  in  the  meantime. 


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The  travel  industry  spends  millions  of  pounds  each  year  to  develop,  for  example,  more  comfortable  seats  on  aircraft 
and  more  luxurious  hotel  accommodation.  But  is  enough  attention  being  paid  to  disabled  travellers? 


When  simple  travel  is 
usually  far  from  easy 


Sarah  Murray  reports  on  some 
situations  most  able-bodied 
people  take  for  granted 


You  are  blind.  Ahead  lies 
almost  a mile  of  corridors 
crowded  by  people  with 
bags,  trolleys  and  children 
and  all  rushing  to  catch 
flights.  In  the  middle  of  your 
route  Is  a shopping  centre 
where  duty-free  retailers  do 
their  best  to  ensnare  passing 
pedestrians.  Signs  guide  pas- 
sengers through  this  maze, 
but  you  cannot  see  them. 

You  are  in  a wheelchair. 
The  airline  you  are  using  for 
a long-haul  flight  insists  you 
take  an  escort  as  cabin  staff 
- classed  as  food  handlers  - 
are  not  allowed  to  help  you 
to  the  lavatory  during  the 
flight.  This  means  paying  far 
another  ticket  for  the  jour- 
ney. 

These  are  just  two  prob- 
lems faced  by  disabled  trav- 
ellers. Others  include  identi- 
fying and  retrieving  luggage 
if  you  are  blind,  the  pain  of 
long-haul  travel  in  an  econ- 
omy class  seat  when  you 


have  stiff  limbs  or  arthritis, 
the  sheer  size  of  modem  air- 
ports for  those  with  mobility 
problems,  and  endless  for- 
ward planning  far  all. 

“Everything  has  to  be  pre- 
planned," Bays  Bert  Massle 
director  of  Radar  (Royal 
Association  for  Disability 
and  Rehabilitation)  and  a 
wheelchair  user.  “How  am  I 
getting  to  the  airport?  Will 
there  be  people  there  to  help 
me  on  to  the  plane?  What 
kind  of  plane  is  it?  Yon  have 
to  take  all  that  into 
account" 

For  some.  Its  a question  of 
attitude.  On  one  business 
trip,  John  Wail,  chairman  of 
the  Royal  National  Institute 
for  the  Blind  and  himself 
blind,  was  shocked  when  at 
the  check-in  counter  he  was 
asked  to  use  a wheelchair  to 
get  to  the  departure  gate. 
“The  woman  behind  the 
desk  said:  'Well,  you  can 
either  walk,  through  in  45 


minutes’  tima  or  go  through 
in  a wheelchair  now'.1’ 
Despite  such  frustrations, 
vast  Improvements  have 
been  made  to  airports  by  the 

Introduction  of  greater  areas 
of  level  access,  help  phones, 
induction  loops  for  the  hard 
of  hearing,  easy  access  toi- 
lets and  other  infrastructure 
adjustments.  “Most  people 
have  trolleys,  so  designing 
level  access  Is  obvious  good 
practice  far  airports  even  if 
they  haven’t  got  their  heads 
round  the  disability  side," 
says  Ann  Frye,  head  of  the 
mobility  unit  at  the  UK 
Department  of  the  Environ- 
ment, Transport  and  the 
Regions. 

In  the  UK,  BAA's  Easy 
Access  Design  Standard  pro- 
vides a check  list  of  the  facil- 
ities needed  for  disabled 
travellers  that  is  used  in 
project  development  at  Its 
airports.  According  to  Alicia 
Hamilton,  special  needs 
manager  at  BAA,  much  can 
be  achieved  simply  by  focus- 
ing on  details,  such  as  posi- 
tioning toilet  flushes  so  they 
can  be  readied  by  a wheel- 
chair user.  “This  is  not  ear- 
thEha tiering,"  she  says.  “Its 


often  the  ■rimpitv  things  that 
can  make  an  awful  lot  of  dif- 
ference." 

These  simple  measures  are. 
easily  overlooked.  Sidney 
CalliB,  chairman  of  the  Blind 
Business  Association  which 
helps  visually  impaired 
people  Into  self  employment 
suffers  from  retinitis  pig- 
mentosa, leaving  him  with 
extremely  poor  near-sight 
and  total  blindness  at  night 
Mr  Callis,  who  travels  to 
“the  four  corners  of  the 
earth"  as  a consultant  and 
trainer,  says  that  even  Sing- 
apore’s Changi  airport, 
which  he  describes  as  “one 
of  the  best  in  the  world”  has 
one  big  disadvantage  for 
blind  people. 

“It’s  carpeted,"  he  says. 
“And  when  you  put  your 
white  stick  out,  every  so 
often  it  hits  a metal  strip 
where  they’ve  joined  two 
pieces  of  carpet  and  you 
think:  "What  the  bell's  going 
on  now?*." 

In  some  airports,  however, 
the  floor  covering  is  the 
least  of  the  worries.  “Athens 
airport  has  a particularly 
bad  reputation,”  says  Ms 
Frye.  "They  seem  to  herd 


Airports  operator  BAA  has  incorporated  telephone  help  points,  such  as  this  one  at  Stansted 


wheelchair  users  into  an 
underground  passage  with 
no  ventilation.  They  won't 
let  you  wait  with  your  fam- 
ily. You're  whisked  away 
and  dumped  in  this  subterra- 
nean corridor  with  no  Infor- 
mation, and  that’s  pretty 
grim.’* 


Another  problem,  she 
says,  is  that  no  accessibility 
conditions  are  attached  to 
European  Commission  devel- 
opment project  funds.  “So 
you  can  get  massive  funding 
to  put  op  a totally  inaccessi- 
ble building,"  she  says. 
Access  to  the  Skies  - a 
group  organised  by  the 
mobility  unit  of  the  UK 
Department  of  Transport 
that  comprises  representa- 
tives of  airlines,  aliports  and 
disability  groups  - Is  putting 
pressure  on  the  commission 
to  Introduce  conditions  for 
funding. 

“Nell  Kinnock  (the  trans- 
port commissioner  has  been 
very  receptive  to  the  Idea,” 
says  Ms  Rye.  ’1  think  it  will 
be  coming  on  stream  very 
shortly." 

But  while  legislative  pres- 
sure can  help  enforce  acces- 
sibility In  airports,  the  UK's 
19B8  Disability  Discrimina- 


tion Act  does  not  cover  air 
travel,  and  airlines  operate 
their  own  policies  on  disa- 
bled travel.  This  can  include 
Imposing  wheelchair  han- 
dling charges. 

“At  the  moment  all  the  big 
airlines  absorb  the  cost." 
says  Ms  Frye.  “But  some  of 
the  smaller  ones  operating 
on  wafer  thin  profit  margins 
have  to  pass  the  cost  on  to 
the  passenger."  According  to 
Mr  Massie  of  Radar,  this 
commercial  agenda  is  part  of 
the  trouble,  particularly  on 
the  issue  of  leg-room.  “Its 
not  that  people  sit  at  the  air- 
port and  say:  'We’re  going  to 
discriminate  against  you’." 
he  says.  “What  they  say  is: 
‘We  have  very  real  economic 
pressures  therefore  we  must 
get  as  many  people  on  an 
airplane  as  possible’." 

For  Mr  Massie  and  others 
on  the  Access  to  the  Skies 
committee,  distributing  the 


cost  would  be  a solution.  “If 
everybody  paid  a small  fee. 
no  one  would  miss  it  and  I 
don't  think  anyone  would 
object  if  they  knew  what  it 
was  for."  he  says. 

“If  you  spread  the  cost  it 
would  be  fractional  across 
the  board,  whereas  if  you 
focus  it  on  certain  passen- 
gers it  becomes  bath  dis- 
criminatory and  quite 
heavy.”  says  Ms  Frye, 

Other  issues  needing  to  be 
resolved  include  airlines 
classifying  disabled  people 
as  sick  or  being  able  to  insist 
that  they  are  accompanied 
by  helpers.  Ms  Frye  says 
that  a group  under  the  Euro- 
pean Civil  Aviation  Confer- 
ence is  currently  working  to 
establish  good  practice 
among  airlines. 

But  as  the  market  for  disa- 
bled travellers  expands,  car- 
riers may  be  forced  to  move 
their  policies  closer  to  cur- 
rent thinking  on  disability 
lscrimination. 


and  discrimii 

Airlines,  hotels 
making  progress 

But  a company’s  good  work  can  be  let  down  by 
an  employee’s  attitude.  David  Pilling  reports 


When  Bert  Massie  started 
using  London’s  Heathrow 
airport  80  years  ago.  his 
check-in  procedure  involved 
a trip  to  the  medical  centre 
where  a nurse  offered  him  a 
cup  of  tea  - and  a catheter. 
T always  accepted  the  for- 
mer and  declined  the  latter." 
says  Mr  Massie,  director  of 
the  Royal  Association  for 
Disability  and  Rehabilita- 
tion, and  himself  a wheel- 
chair user. 

Those  were  the  days  when 
airlines  made  few  provisions 
for  disabled  passengers,  not 
even  ensuring  that  toilets 
were  accessible  cm  long-haul 
flighfa-  A catheter  was  the 
best  they  could  come  up 
with.  Not  surprisingly,  few 
disabled  people  ventured 
abroad.  Those  who  did  were 
such  rarities  that  Heathrow 
was  able  to  ferry  them  indi- 
vidually to  the  plane  in  an 
ambulance. 

Such  individual  service 
has  gone.  But  few  are 
mourning  its  passing.  These 
days,  more  than  half  a mil- 
lion disabled  passengers, 
many  of  them  business  trav- 
ellers, use  Heathrow  every 

year,  mirroring  a worldwide 

explosion  in  travel  by  disa- 
bled people. 

Many  airlines  have 
adapted  to  these  new 
demands,  though  some  bet- 
ter than  others.  'Hie  catheter 
problem,  for  example,  has 
been  solved  by  the  simple 
expedient  of  equipping  air- 
craft with  “sky  chairs",  on- 
board wheelchairs  narrow 
enough  to  squeeze  down  the 
alles  and  into  the  lavatory. 

American  Airlines  is  typi- 
cal of  the  better  carriers. 
Although  it  permits  only  one 
manually-operated  wheel- 
chair on  board  each  flight,  it 
allows  other  disabled  passen- 
gers to  check  in  their  wheel- 
chairs at  the  gate.  At  depar- 
ture and  arrival,  assistance 
Is  available  to  help  people  on 
and  off  the  plane  as  wen  as 
to  and  from  the  airport  ter- 
minal. American  Airlines 
does  not  charge  for  this  ser- 
vice, but  some  airlines  do. 

T.tiw  man;  airlines,  Ameri- 
can does  not  allow  passen- 


gers to  bring  their  own  oxy- 
gen equipment  on  board.  It 
can  supply  oxygen,  but  it 
charges  875  per  sector  of  the 
Journey. 

American  is  also  fairly 
typical  in  computerising  any 
special  needs  frequent  disa- 
bled travellers  may  have 
(from  the  amount  or  help 
required  to  dietary  require- 
ments). This  is  intended  to 
spare  passengers  the  trouble 
of  forever  repeating  their 
requirements  at  each  stage 
of  the  journey  or  when  book- 
ing a new  night. 

Frequent  air  travellers 
from  the  UK  fill  out  a simi- 
lar form.  But  it  took  a revolt 
from  disabled  activists  to 
expunge  questions  asking 
whether  the  traveller's 
smell,  appearance  or  behav- 
iour was  likely  to  cause 
offence  to  other  passengers. 
Mr  Massie,  who  is  a regular 
business  traveller,  has  had 
mixed  experiences  with  air- 
lines. German.  Scandina- 
vian, Swiss.  UK  and  US  air- 
lines are  generally  good,  he 
says.  With  others,  it  is  more 
hit  and  miss.  Air  France,  for 
example,  once  brought  him 
safely  back  from  a business 
trip  to  Paris,  but  neglected 
to  carry  his  wheelchair. 
“That’s  like  cutting  off  my 
le^."  he  says.  “It's  just  not 
forgivable." 

Getting  to  a destination 
with  body,  soul  and  equip- 
ment in  tact  is  just  half  the 
battle.  The  other  big  factor 
is  the  hotel  at  the  other  end. 
Here  again,  the  picture  is 
varied.  The  Copthorne  Tara 
In  Kensington,  part  of  the 
Millennium  & Copthorne 
group,  was  the  first  hotel  in 
London  to  make  itself  fully 
accessible.  It  now  has  10 
rooms  that  are  thoroughly 
adapted,  two  of  which  have 
hoists  from  the  bed  to  tbe 
bathroom  for  those  with 
severe  disabilities.  The  other 
rooms  have  odder  automatic 
doors,  induction  loops  and 
flashing  fire  alarms  for  the 
hearing-impaired,  wheeMn 
showers,  remote-control 
operated  curtains,  lower 
beds  and  fridges  for  medica- 
tion. The  hotel  regularly 


hosts  conferences  on  disabil- 
ity and  staff  are  used  to 
catering  to  the  needs  of  up 
to  100  disabled  guests  at  a 
time. 

The  Copthorne  Tara  is  still 
tbe  exception.  But  says 
Brian  Seaman,  a UK  consul- 
tant on  hotel  accessibility, 
other  chains,  both  in  Britain 
and  abroad,  are  becoming 
more  and  more  conscious  of 
the  need  to  cater  for  disabled 
guests. 

In  many  countries,  build- 
ing regulations  for  all  new 
hotels  require  that  a certain 
□umber  of  rooms  are  fully 
accessible.  Existing  hotels  in 
older  buildings  are  doing 
what  they  can  to  adapt,  he 
says. 

“We've  come  a long  way  in 
the  past  15  years.-'  says  Mr 
Seaman.  “Now.  it's  a very 
positive  picture.  1 see  exist- 
ing hotels  making  great 
strides,  and  facilities  in  new 
hotels  should  be  folly  acces- 
sible from  now  on." 

None  of  this  means  disa- 
bled travellers  can  relax. 
Guests  are  often  told,  for 
example,  that  a hotel  does 
not  have  any  steps  at  the 
entrance,  only  to  find  there 
are  three  or  four  fa  potential 
cliff-face)  when  they  arrive. 
Other  guests  are  treated 
insensitively  by  reception- 
ists unaccustomed  to  dealing 
with  disabled  guests.  “This 
all  comes  down  to  staff  train- 
ing,” says  one  experienced 
business  traveller. 

American  staff  are  often 
the  best  trained,  partly 
because  a strong  disability 
lobby  forced  changes  in  the 
law  at  an  early  stage.  Tbe 
UK.  Scandinavia  and  other 
parts  or  northern  Europe  are 
arguably  next  best,  with 
much  of  tbe  rest  of  the  world 
still  some  way  behind. 

Mr  Massie  found  this  out 
to  bis  cost  on  a recent  trip 
back  to  London  from  South 
Korea.  The  airline  provided 
□o  sky  chairs  and  no  assis- 
tance in  using  the  bathroom. 
“I  was  expected  to  go  12 
hours  without  using  the  lav- 
atory," he  says.  It.  was  just 
like  the  bad  old  davs. 


vm 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  IQ  1998 


the  business  of  TRAVEL  8 


Travel  management 


Euro  offers 


opportunity 


to  compare 


Companies  are  eyeing  the 
advantages  of  a single  currency 
writes,  Rachael  Jolley 


Business  travellers  will  lead 
the  advance  party  of  regular 
users  switching  over  to  the 
new  European  currency  - 
the  euro  - when  It  comes 
into  existence  on  January  1. 
They  are  likely  to  be  among 
the  first  to  work  with  the 
euro  regularly  and  the  first 
to  become  comfortable  using 
it,  as  their  companies 
identify  the  accounting  and 
negotiating  advantages  in 
opting  for  a single  currency. 

From  the  beginning  of 
next  year,  regular  travellers 
will  start  to  encounter  euro 
pricing  across  the  11-country 
zone.  Hotel  companies  are 
currently  discussing  how 
and  where  to  offer  euro 
pricing.  Airlines  are 
debating  whether  customers 
need  to  see  prices  quoted  in 
euros  as  well  as  the  national 
currencies  from  day  one. 

The  global  travel 
distribution  systems,  such  as 
Amadeus  and  Sabre,  are 
offering  the  ability  to 
convert  to  euro,  although 
main  displays  are  likely  to 
be  in  national  currencies 
only. 

Ian  Hall,  vice-chairman  of 
the  Institute  of  Travel 
Management,  the  group 
representing  travel 

managers,  says:  “Overall, 
the  euro  could  be  good  news 
for  business  travellers. 
There  will  be  one  currency. 
There  will  be  an  opportunity 
to  compare  pricing  and  it 
will  be  a lot  less  hassle." 

Despite  the  fact  that  the 
actual  euro  cash  will  not  be 
available  during  the  dual 
currency  period,  between 
1999  and  2002,  it  will  be 


possible  to  make  purchases 
using  a credit  card  or 
traveller's  cheque.  Given 
business  travellers' 
propensity  to  use  credit 
cards,  that  should  not  be  too 
much  of  a hardship. 

In  fact,  card  companies 
such  as  Visa  international 
expect  to  see  a surge  in  use 
during  the  dual  currency 
period.  Visa  is  also  adding 
the  euro  to  its  Visa 
TravelMoney  smart  card,  a 
card  which  can  be  loaded  up 
with  the  equivalent  of 
various  national  currencies. 
Cash  can  then  be  withdrawn 
at  cashpoints. 

Mr  Hall  believes  that  being 
able  to  compare  prices  in 
euro  across  Europe  is  going 
to  deliver  another  weapon 
into  the  travel  manager's 
armoury  whe  n it  comes 
around  to  rate  negotiations. 
“It  will  enable  us  to  make 
real  comparisons  and 
question  the  cost" 

Tom  Stone,  worldwide 
travel  manager  at 
SmithKline  Beecham.  says: 
“I  think  the  consensus  is 
that  the  euro  wifi  be  a good 
thing.**  His  pharmaceuticals 
company  will  allow  each 
unit  within  the  euro  zone  to 
set  its  own  policy  on  how  it 
will  handle  the  new 
currency,  i 

Mr  Stone  believes  the  addi- 
tional transparency  may 
bring  major  inconsistencies 
in  air  fares  out  into  the 
open. 

“Everyone  knows  flights 
out  of  London  to  North 
America  are  25  per  cent 
above  those  from  continental 
Europe,"  he  says.  Suddenly, 


Intranets  can  ease 


the  bookings  pain 


Amon  Cohen  finds  out  how  tricky  reservations 
can  be  made  from  the  comfort  of  an  armchair 


Canytng  the  euro  (left)  should  cut  down  on  the  need  for  travellers  to  carry  a fistful  of  currencies 


those  pricing  strategies  will 
be  laid  on  the  table,  giving 
travel  managers  the  chance 
to  ask  hard  questions. 

The  euro  may  also  give  the 
green  light  to  more  pan-Eu- 
ropean flight  deals,  so  a 
large  company  will  negotiate 
prices  with  an  airline  on  var- 
ious routes  across  Europe. 

The  arrival  of  the  euro  is 
also  likely  to  advance  the 
case  for  a pan-European 
travel  agent  who  can  work 
for  larger  corporations 
across  the  region. 

Mr  Stone  feels  that  smaller 
agents  could  be  threatened 
by  the  euro,  especially  if 
they  fail  to  recognise  its 
potential  or  Invest  in  the 
software  needed  to  account 
in  the  currency. 

Carlson  Wagonlit  Travel 


(CWL)  estimates  that  the 
euro  will  stimulate  business 
travel  to  Increase  by  8 per 
cent  in  the  next  six  years, 
which  could,  in  turn,  be  a 
factor  that  will  counteract 
the  price  transparency  factor 
and  stop  flight  prices  falling. 
It  also  predicts  that  as  pan- 
European  agencies  become 
more  common,  that  one  mul- 
ti-lingual centre  could  han- 
dle reservations  from  across 
the  continent.  CWL  is 
already  building  large,  out- 
of-town  reservation  centres 
in  the  UK  and  France. 

CWL  estimates  that  the 
cost  to  companies  of  the 
transition  to  using  euros  will 
be  up  to  3 per  cent  of  turn- 
over. Apart  fromJhe  savings 
on  transaction  costs  for  for- 
eign exchange,  the  euro  is 


likely  to  make  expense 
reporting  easier. 

Travellers  from  non-euro 
countries,  hut  travelling 
within  the  euro  zone,  may 
also  find  it  easier  to  use  the 
common  currency.  Once  the 
coins  are  available,  one 
potential  saving  will  be  in 
not  returning  with  pocketful 
of  change  from  a variety  of 
countries.  These  are  the 
coins  that  then  disappear 
into  the  back  of  a drawer  for 


years. 

Travellers  who  think  they 
lose  out  on  expense  claims 
due  to  transaction  fees,  shift- 
ing exchange  rates,  and  buy- 
ing versus  selling  prices, 
would  obviously  gain  from 
working  .within,  ihe  euro 
zone,  where  exchange  rates 
among  the  participating 
countries  will  be  fixed  dur- 
ing the  dual  currency  period. 

Some  tickets  are  already 
being  issued  with  euro 
prices  on  them,  such  as  at 
the  Eurostar  terminal  in 
Brussels.  But  after  January  1 
the  euro  and  its  new  symbol 
will  became  a more  familiar 
sight,  and  companies  are 
likely  to  take  firm  decisions 
about  how  they  want  travel- 
lers to  handle  euro  transac- 
tions. 


The  British  Council  has 
some  obscure  outposts  in  the 
109  countries  covered  by  its 
activities.  Yet  even  from  the 
remotest  corner  of  Africa, 
booking  a hotel  room  in  the 
UK  could  not  he  easier.  The 
British  Council  officer  sim- 
ply dials  into  the  organisa- 
tion’s corporate  intranet  - 
its  closed-user  web  site  - 
and  looks  through  a direc- 
tory of  preferred  properties. 

The  user  can  make  a 
search  based  on  location, 
price  or  even  whether  the 
hotel  has  a car  park.  If  they 
want  to  know  more  about  a 
particular  property,  they  can 
click  a button  for  further 
details  and  a photograph. 

With  some,  they  can  even 
take  a virtual  “walk- 
through”. panning  around 
the  interior  with  their  com- 
puter mouse.  Once  the  selec- 
tion is  made,  the  user  enters 
details  such  as  the  number 
of  guests  and  the  number  of 
nights  required,  and  the 
computer  makes  the  book- 
ing. 

All  this  has  been  done  for 
the  British  Council  - which 
promotes  cultural,  technical 
and  educational  co-operation 
between  the  UK  and  the  rest 
of  the  world  - by  a web- 
based  hotel  reservations 
company  called  the  Corpo- 
rate Team. 

Apart  from  the  conve- 
nience, the  system  also  pro- 
duces significant  economical 
advantages  for  the  British 
Council.  The  Corporate 
Team  has  built  its  own  data- 
base which  bypasses  the 
vast  global  distribution 
systems  (GDS)  used  by  most 
of  the  travel  industry. 

Operations  director  Jay 
Virdee  claims  GDS  fees  and 
other  electronic  distribution 
costs  can  doable  the  8 to  10 
per,  cent  commission  q^hotel 
pays  an  agency  for  each 
booking.  Using  the  new  sys- 
tem effectively  halves  the 
cost  of  selling  a room,  which 
means  hotels  can  pass  on 
some  of  the  distribution 
savings  through  improved 
rates  to  the  customer. 

The  system  also  provides 
an  electronic  distribution 
medium  for  small,  indepen- 
dent properties  which  can- 
not afford  GDS  fees.  This  is 
perhaps  the  principal  attrac- 
tion for  the  British  Council, 
which  reserves  68,000  room 


nights  a year  from  its  UK 
offices  alone.  Although  some 
are  in  upmarket  hotels  used 
by  visiting  foreign  digni- 
taries. many  axe  for  students 
staying  in  much  cheaper 
accommodation. 

“It  is  much  easier  using 
this  system  than  a GDS  to 
get  our  own  preferred  suppli- 
ers put  on  the  database.” 
says  British  Council  travel 
manager  Kevin  Watts.  “In 
particular,  the  British  Coun- 
cil has  business  in  hostel- 
type  properties  - and  you 
cannot  find  those  on  the 
GDS.  We  wanted  something 
more  flexible.’' 

Although  it  is  nwnstial  to 
have  a live  booking  system, 
especially  outside  the  US. 
travel  content  on  corporate 
intranets  is  “absolutely  hot 
at  the  moment”,  according 
to  Marc  Hildebrand,  head  of 
product  development  for 
travel  management  com- 
pany, Business  Travel  Inter- 
nafinnal. 

Ultimately,  many  compa- 
nies will  use  them  to  book 
flights  as  well  as  hotels  but 
Mr  Hildebrand  counsels  cli- 
ents to  proceed  gently.  “If 
you  go  in  with  an  all-sing- 
ing, all-dancing  system,  than 
users  could  be  overwhelmed 
and  they  won't  go  back,”  he 
says.  “They  need  an  educa- 
tional phase.” 

Mr  Hildebrand  recom- 
mends a three-stage  pro- 
gramme. Phase  one  has 
static  content,  including 
travel  news,  procedural 
information  such  as  how  to 
file  expense  reports,  data  on 
preferred  suppliers  and  the 
company's  travel  policy. 
Hyperlinks  liven  up  the  con- 
tent. with  connections  to 
preferred  suppliers'  sites,  for 
instance,  allowing  travellers 
to  check  the  status  of  their 
frequent-flyer  accounts. 

The  second  stage  features 
travel  planning  tools,  such 
as  air  schedules  and  a hotel 
directory,  plus  a list  of  ques- 
tions and  answers  regarding 
the  most  common  queries 
the  travel  agent  receives. 

It  also  carries  destination 
information  plus  weather 
reports  and  exchange  rates. 
Only  once  all  this  content 
has  been  absorbed  does  Mr 
Hildebrand  recommend 
adding  self-service  reserva- 
tions. and  even  then  this  will 
not  be  for  everybody.  One  of 


the  best  travel  intranets  he 
knows  is  that  of  Glaxo  Wall- 
come.  where  travel  manager 
Richard  Plummer  is  firmly 
against  employees  making 
their  own  bookings.  “Our 
core  business  is  finding, 
developing,  manufacturing 
and  selling  pharmaceuti- 
cals,” says  Mr  Plummer. 

“We  have  research  scien- 
tists who  cost  a lot  of  money 
and  1 want  them  to  concen- 
trate on  that,  not  making 
travel  arrangements.” 

Although  it  is  not  cost-ef- 
fective for  employees  to  deal 
with  the  intricacies  of  travel 
hooking,  Mr  Plummer  dis- 
covered savings  ware  to  be 
made  through  a booking 
request  system.  Travellers 
send  an  e-mail  specifying 
where  they  want  to  go  and 
when,  leaving  the  rest  to  the 
BIT  agents,  who  pick  up  the 
request. 

Mr  Plummer  has  also  put 
a Q&A  sheet  on  the  site.  As 
a result  of  these  measures, 
the  average  number  of  tele- 
phone rails  required  to  com- 
plete each  booking  has 
dropped  from  eight  to  six, 
allowing  him  to  reduce  his 
headcount 

The  key  to  successful 
travel  management  is  con- 
solidating spending  with 
fewer  suppliers  in  return  for 
greater  discounts.  Mr  Plum- 
mar’s  job  is  to  ensure  Glaxo 
Wellcome  sticks  to  its  side  of 
the  bargain.  And,  so  for  this 
year,  only  seven  travellers 
have  flown  the  Atlantic  with 
non-preferred  suppliers,  even 
though  the  company  does 
not  impose  an  absolute  man- 
date on  employees. 

Mr  Plummer  has  achieved 
this  through  heavy  promo- 
tion of  preferred  suppliers  on 
the  intranet  "I  see  my  web 
site  as  a very  exclusive  club. 
If  you  are  on  it  you  are  a 
preferred  supplier."  he  says. 

The  Glaxo  Wellcome  site 
receives  4,500  visits  per  week 
from  around  the  world.  It 
also  includes  maps  of  com- 
pany locations  and  destina- 
tion information  from  the 
health  and  safety  and  secu- 
rity departments. 

Even  national  preferences 
are  taken  into  account  At 
the  request  of  Italian 
employees,  who  are  particu- 
larly averse  to  hotel  dining 
rooms,  the  site  features  a 
restaurant  directory. 


T’S  OUR  70TH 


Still  lost  in  translation 


ANN  I VERSARY, 


Electronic  systems  have  a long  way  to  go  before  they  become 
reliable  interpreters,  writes  Amon  Cohen 


BUT  WE’D 


LIKE  YOU  TO 


CELEBRATE. 


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• iui  cl r thitj  u i . i he  h-i  jur-r  ilK5>- 5 ((  AjrC  1 

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:!■  ■ _ k v Or  ter  *.  j 1 : J • nu  :.vh  Pcccmhc'  “'OS. 


THE  PENINSULA 


HONG  KONG 


Silutin  Road,  Kuwtuan,  Hone  tn|.  Ttl.  I*'!*  ■ fiat-  t952>  2722  4IM 

The  Pemmuia  Croup  Rexrwriom  Centre,  Hons  Konj.  Toll  Free-  WI  SCO  2 * -1  5555  iSmeipnn  did  T)uul«&dl 
Tull  IW  00  800  2W  5555  IMslraw)  0080  85  5401  (Tuna  1 001  85!  1274  (IbJixkjIs)  1930  765  iZ 75  IETF!  Scroti  Fran  The  PhUppaeU 

E-aail-  {>entfFeniiiHib-a>a  • Tebate:  vm  pcroitfnliirum 


site  <&r 

‘Th^adio^HotdsaCdxFWbiid' 


Imagine  a business  traveller 
meeting  a client  in  a country 
where  they  are  unable  to 
communicate  because  they 
do  not  speak  a common 
language.  Fortunately,  the 
traveller  pulls  out  a mobile 
telephone  with  a speaker 
attached  to  it,  dials  an 
electronic  translation  service 
and  tells  it  which  languages 
are  being  spoken.  The 
meeting  then  proceeds  with 
the  mobile  phone  acting  as 
an  Interpreter,  automatically 
translating  each  sentence  as 
it  is  uttered. 

This  remains  in  the  realm 
of  science  fiction  but  it  is  the 
goal  towards  which  the 
publicly  and 

privately-funded  German 
Research  Centre  for 
Artificial  Intelligence  is 
working.  The  centre  is 
attempting  to  marry  voice 
recognition  and  mechanical 

translation  technologies.  It 
has  already  developed  a 
system  called  Verbmobil 
that  enables  German  and 

English  speakers  to  arrange 
a meeting  by  interpreting 
days  of  the  week,  hours  of 
the  day  and  so  on. 

Clearly,  this  has  no 
practical  value  since  there  is 
little  point  in  two  people 
meeting  if  they  cannot  even 
Ox  an  appointment  in  the 
same  language,  but  the 
project  was  undertaken  for 
experimental  purposes  only. 

Next  on  the  list  are 
multilingual  hotel 
reservations  and  travel 
planning  systems.  Travellers 
will  be  able  to  book  a room 
or  learn  a flight  time  by 
talking  to  a multilingual 
voice-recognition  system. 

For  now,  however,  options 
for  the  linguistically 
challenged  traveller  remain 
limited.  Apart  from 
traditional  phrase  books  and 
dictionaries,  there  is  a web 
site  which  carries  out  free 
instantaneous  translations. 
Systran,  available  on 


http:llbabelffsh.  altavista. 
digitaLcom.  allows  the  user 
to  type  in  text  or  the  address 
of  a web  page. 

The  good  news  is  that 
translation  takes  seconds; 
the  bad  news  is  that  the 
result  is  only  one  step  up 
from  gibberish. 

I fed  in  a sentence  from 
German  instructions  for  the 
construction  of  my  daugh- 
ter's paddling  pool  and  Sys- 
tran came  back  with:  “All 
pins  with  a screwdriver 
tighten  (not  [ubrnnasigl 
fixed,  since  otherwise  the 
plastic  twists  itself).  All  sup- 
port lags  Emussen]  even  its. 
and  the  lining  should  sit  cor- 
rectly, and  without  folds." 

A sentence  from  the  origi- 
nal French  of  George  Sand's 
novel  La  Petite  Fadette  fared 
even  worse;  “But,  by  misfor- 
tune, its  triumph  gave 
[depit]  has  five  or  six  kids 
who  made  It  dance  has  the 
practice,  and  which,  not 
being  able  more  to  approach 
.some,  they  which  never  bad 
[etej  proud  with  it.  and 
which  estimated  it  much  for 
its  dance,  are  reflected  has 
to  criticize  it,  has  to 
reproach  him  its  pride 
and  has  to  whisper  around 
it" 

Not  much  point  in  carry- 
ing that  around  a foreign 
land  on  your  laptop,  but  in 
fairness,  Systran  and  other 
machine  translations  were 
not  designed  to  replace 
human  interpreters.  Where 
they  can  be  of  use  is  in  pro- 
viding rough  approximations 
of  a text  that  allow  the 
reader  to  divine  the  gist  of 
what  is  being  said. 

Although  not  necessarily 
the  endorsement  it  would 
want,  Systran  is  used  by  the 
European  Commission  to 
translate  hundreds  of  thou- 
sands of  pages  each  year. 

There  are  also  bureaux 
which  provide  machine 
translations.  US-based  Inter- 
national Science  and  Tech- 


nology Associates  specialises 
in  Japanese  patents.  “Our 
clients  are  mainly  chemical 
companies  which  have  to 
keep  track  of  the  competi- 
tion," says  ISTA  president 
Alan  Engel.  “This  allows 
them  a quick  glance  at  what 
is  inside.  In  95  per  cent  of 
cases,  that  is  enough;  if  they 
need  more,  they  can  get  a 
human  translator.” 

The  advantages  of  a 
machine  translation  are  that 
ISTA  charges  roughly  $io  a 
page  of  a Japanese  patent, 
instead  of  $110  through  a 
human  bring,  and  turns  the 
job  around  within  two  days. 

As  with  most  reputable 
bureaux;  ISTA  carries  out 
limited  checking  to  weed  out 
the  biggest  errors.  Whether 
the  machine  translation  is 
performed  by  professionals 
or  on  a purchased  system, 
simply  plugging  In  the  pro- 
gram will  merely  churn  out 
text  the  quality  of  the  Alta 
Vista  version  of  Systran. 

“The  secret  is  to  invest 
time  inputting  terminology,” 
says  Terence  Lewis,  director 
of  Hook  & Hatton,  a UK  com- 
pany specialising  in  techni- 
cal translation  and  mechani- 
cal translation  services  via 
e-mail  The  system  only 
becomes  efficient  when  pro- 
grammed with  the  precise 
vocabulariy  of  a specialised 
sector.  Mr  Lewis  warns  this 
could  involve  inputting  tons 
of  thousands  of  terms  and 
could  take  several  months. 

However,  the  process  can 
still  be  more  cost-efficient 
than  using  human  transla- 
tors, Mr  Lewis  claims. 

Aircraft  maintenance  man- 
uals are  increasingly  being 
produced  in  this  way,  pre- 
sumably to  a level  suffi- 
ciently satisfactory  so  as  not 
to  jeopardise  safety. 

Another  option  is  a trans- 
lation memory  system.  This 
is  a data  base  carrying  all  of 
a company's  previous  trans- 
lations, which  Is  combed  to 


see  if  it  contains  any  phrases 
in  a new  document  to  be 
translated. 

However,  Lena!  Lewis,  a 
freelance  translator  who 
mainly  plies  her  trade  for 
BT,  is  sceptical  of  a system 
purporting  to  do  half  the  job 
for  her. 

“I  would  much  rather  get 
my  teeth  into  the  original 
document,"  she  says.  “It  is 
difficult  to  tidy  up  unless 
you  know  the  original  lan- 
guage.” 

A Chinese- whispers  type 
of  distortion  must  also  be  an 
inherent  risk  in  any  two- 
stage  translation.  Responsi- 
ble machine  translation  pro- 
viders always  make  it  clear 
that  their  systems  should 
not  be  used  for  providing 
pristine  copy  to  third  parties 
or  for  other  than  the  most 
unambiguous  types  of  text. 
However,  professional  trans- 
lators are  concerned  that 
some  businesses  are 
unaware  of  these  limitations. 

"What  makes  translating 
different  from  all  other  ser- 
vices or  products  is  that  the 
buyer  of  a translation  cannot 
judge  the  quality  of  what 
they  are  getting,"  says  Chris 
Durban,  a Paris-based  mein-  ■ 
ber  of  the  UK's  Institute  of 
Translation  and  interpret- 
ing. "That  is  what  makes  the 
push-button  option  particu- 
larly dangerous.  The  client 
might  catch  identifiable 
vocabulary  errors  but  they 
will  not  be  able  to  assess-  the 
style.”  i — 


TRAVEL  AGENCY 

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Travellers’  tales 


Sing  a song  for  silence  . . . 


Sarah  Murray  tells  why  opera 
singer  Jennifer  Smith 
likes  to  be  kept  in  the  dark 


When  Jennifer  Smith,  the 
British  opera  singer,  checks 
into  a hotel  she  is  not 
looking  for  chocolates  on  her 
pillow.  80  channels  on  the 
television  set,  or  a supply  of 
personalised  writing  paper. 
She  wants  something  that  is 
simple  but  often  hard  to 
obtain  - silence.  “Any  kind 
of  musician  needs  quiet.’’ 
she  says,  “because  there’s 
music  going  on  in  you’re 
head.  People  don’t  realise 
that.” 

When  she  is  on  a working 
trip,  Ms  Smith  - a soprano 
who  performs  in  opera 


houses  all  over  the  world  - 
Is  often  learning  a new  piece 
of  music  or  is  In  the  final 
stages  of  learning  the 
operatic  role  she  is 
about  to  perform.  “Even  if 
you  are  not  consciously 
studying  a piece  of  music, 
any  noise  is  an  intrusion,” 
she  says. 

But  finding  a quiet 
environment  when  she  is 
travelling  is  not  always  easy. 
“Its  a lottery.”  she  says. 

“You  never  know  what 
you're  going  to  get” 

In  addition  to  requesting  a 
room  in  a quiet  part  of  the 


Anna  Zegne  Travel  keeps  me  energetic  and  the  brain  aBvs’ 

Oh,  no  - it’s 
the  ravioli 
yet  again! 

Gillian  Upton  hears  a plea  for 
airlines  to  give  a little  more 
thought  to  in-flight  food 


ftp? 

■V'V: 

-7  i 

-•  i‘  >• 

*?.r , 


When  you're  paying 
upwards  of  $2,000  for  a 
man's  suit  you  want  the 
right  ambience,  style  of  shop 
and  level  of  service  that  goes 
along  with  it.  Anna  Zegna  is 
head  of  Image  and 
communication  worldwide  at 
the  family-owned 
Ermenegildo  Zegna  luxury 
Italian  mens  wear  group,  and 
it  is  her  job  to  make  sure 
that  you  part  with  your 
money  as  happily  as 
possible. 

Part  of  the  fourth 
generation  of  the  femily  to 
run  the  business.  Anna 
Zegna  roams  the  world  from 
her  Milan  base.  She  checks 
out  the  company's  250  retail 
outlets  - both  Zegna 
boutiques  and  concessions  in 
stores  from  London's  Harvey 
Nichols  to  Saks  in  New  York 
- co-ordinating  point-of-sale, 
the  fashion  collection  and  its 
global  image. 

Aside  from  that,  she 
rhpcica  up  on  the 
competition,  takes  in  a new 
art  exhibition,  perhaps,  or 
furniture  exhibit,  updates 
herself  with  new  display 
equipment,  absorbs  street 
style,  social  trends,  chats  to 
retailers  about  what’s  selling 
well  and  less  wen.  and  meets 
the  press. 

“It's  very  enriching,”  she 
says.  “I  store  everything  I 
see  and  hear  and  it  emerges 
elsewhere  for  various 
projects.” 

Her  job  takes  her 
principally  across  Europe, 
but  also  to  the  US  and 
Japan. 

I like  the  travel."  she  says. 
"It  keeps  me  energetic  and 
keeps  the  brain  alive  and 
young."  The  one  downside , 
she  says,  is  being  away  so 
much  from  her  two  young 
children. 

Anna  has  a strict  routine 
for  Dying,  avoiding  day 
flights  and  taking  a sleeping 
pill  to  see  her  through  the 
long  flight  to  Japan,  for 
instance.  "1  read,  sleep  and 
drink-water;  I very  seldom, 
eat  white  flying.”  she  says. 

She  would  like  airlines 
develop  a private  area  on 
board  with  np  lights  or 
a nnwmcements-  and  for-  ; . 
airlines  to  pay  more 
attention  to  the  food  offend. 
U1  had  cheese  ravioli  eight 
times  cm  various  flights 


within  the  US,”  she  recalls. 

She  flies  business  class  on 
long-haul  but  economy 
within  Europe. 

T need  more  space  far  my 
legs  on  long-hauL 
"I  like  Alitalia  for  the  space, 
in  Magnifies  (business)  class, 
but  not  the  service,  and  1 
like  the  service  on  British 
Airways." 

Anna  packs  according  to 
her  business  and  social 
needs  but  essentials  include 
a summer  or  winter  blue 
blazer,  gym  clothes  and 
usually  an  over-heavy  hand 
luggage  bag  packed  with 
personal  interest  bookB  and 

mnpriiwft 

Within  Europe  she  stays 
in  touch  with  base  by  mobile 
phone  and  fay  "Email  Is  too 
complicated,”  she  says.  T 
don't  take  a laptop  - my 
watk  doesn't  need  one  - and 
I still  love  my  old  pen.” 

She  tries  to  stay  in  a hotel 
with  a pool.  “Swimming 
takes  away  the  drowsiness 
from  your  body,"  she 
believes.  Jetlag  often  catches 
up  with  her  on  day  three  of  a 
trip.  "I  overcome  it  with 
meditation,  relaxing  and 
breathing:  It  helps  me  a lot.” 
she  says- 

Favourite  hotels  include 
the  Delano  in  Miami  (“cute 
and  funky"),  the  Mark  in 
New  York  ("small  and  cosy, 
but  also  service-orientated), 
and  Dukes  in  London  ("ray 
good  cocktails  and  an  Italian 
barman”).' 

“When  you  travel  on 
business  you  have  different 
needs.  1 hale  holds  where 
they  don’t  have  real  keys,  - 
where  they  don't  know  the 
magazines  I like,  rooms  that 
are  too  dark  and  where  it’s 
too  trendy,  rd  like  to  try  the 
Mercer  in  New  York’s  Soho. 

I love  the  furniture  ami  fed 
of  it but  if  It  gets  to  jetsetty 
Td  rather  stay  at  the  Mark 
where  I feel  at  heme." 

London,  New  York  and 
Hong  Kong  archer  three 
favourite  cities,  partly 
because  it  means  catching 
cm  with  friends  in  each  of 
them.  Still  on  the  "to 
discover”  Sst  of  this 
much-travelled 
businesswoman  are  St 
Petersburg,  India  and 
Argentina.  A shop  about  to 
c^en  in  Argentina  should 
soon  cut  the  list  by  one. 


hotel  - away  from  lifts, 
traffic  and  service  areas  of 
the  hi  ill  rling  - Ms  Smith 
• travels  with  ear  plugs. 

“But  there  are  some  things 
that  you  just  can’t  isolate,” 
she  says.  On  a recent  trip  to 
nwwaria,  for  example,  the 
Sheraton  hotel  that  she  was 
staying  in  was  holding  a 
weekend  party  for  teenagers. 
“They  were  running  riot 
There  was  nothing  but 
glamming  doors  all  night  It 
was  really  very  tedious.” 

An  equally  difficult 
commodity  to  guarantee - 
and  one  That  is  just  as 
important1  for  a singer  - is 
darkness.  A performance  of 
an  opera  invariably  ends  at  a 
late  hour  so  a singer’s  most 
intense  periods  of  work  often 
take  place  at  night 

"The  trouble  with  singers 
is  that  we  have  such  strange 
hours.  We  don’t  go  to 
Tnpgfingg  in  the  morning, 
work  in  the  afternoon  and 
then  have  the  evening  off. 
Usually  we  have  to  sleep  in 
Ihe  morning  and  work  in  the 
afternoon  and  evening  until 
very  late.” 

On  a recent  trip  to 
Barcelona,  where  Ms  Smith 


was  performing  the  title  role 
in  Artaserse,  Carl  Heinrich 
Graun’s  three-act  opera,  the 
open-air  performances  could 
not  start  until  night  bad 
fallen  - at  about  10.30pm. 
“Sometimes  during  the 
performances  we  wouldn’t 
get  back  to  the  hotel  until 
230am.  it  was  really  crazy,” 
she  says.  “Then  Td  sleep 
until  about  1230  the  next 
day."  • 

The  quest  for  darkness  has 
led  the  anger  to  acquire 
some  unusual  “Its 

always  a fight,"  she  says.  “In 
Barcelona  the  blinds  in  my 
room  didn't  work.  The  silver 
plastic  strips  didn’t  quite 
close.  Luckily  I had  a 
collection  of  safety  pins  and 
1 pinned  the  strips  together 
to  keep  out  the  light  But 
then,  from  my  bed,  there 
was  one  little  bit  of  light  2 
could  still  see.  So  every 
night  I hung  two  dresses  in 
that  space  to  hide  it” 

The  saga  did  not  end 
there.  “There  was  a window 
that  gave  on  to  people's 
bathrooms  and  kitchens  afl 
the  way  down  the  seven 
floors  of  the  hotel  And  if 
someone  came  in  at  night 


and  turned  a light  on,  rd 
wake  up,”  she  says.  “So  j 
found  a way  with  more 
safety  pins  and  some 
newspapers.  It  became 
laughable  - every  time  I’d 
lie  down  Td  notice  another 
little  bit  of  light.” 

Despite  such  frustrations. 
Ms  Smith  - who  can  be 
away  for  up  to  a month  at  a 
time  if  she  is  working  on  an 
opera  - says  that  she  finds 
these  trips  “very  restful”  in 
many  ways.  “The  house  and 
the  children  *vnd  everything 
take  up  a lot  of  energy."  she 
says.  “When  I go  away  for  a 
long  period,  1 see  it  as  a kind 
of  retreat  It’s  my  time,  and 
there  are  no  demands  except 
those  made  by  my  work. 
When  I*m  at  home ) think 
’Oh.  I’ve  got  to  water  that 
plant’  and  worry  about 
tbings  getting  dirty." 

When  she  is  working 
overseas,  she  is  often  offered 
a place  to  stay  by  the  people 
who  hire  her.  But  while  she 
enjoys  staying  with  friends, 
she  says  that  it  is  often 
easier  to  be  in  a hotel  “You 
have  no  obligations  to 
anyone.  You  are  your  own 
master.  The  only  obligations 


Hr  ■ 


PUS 


Jennifer  Smith:  Travel  is  a lottery;  you  never  know  what  you're  going  to  get* 


Pnofcx  Smh  Umar 


you  have  are  to  your  work." 

Ms  Smith  says  that  part  of 
maintaining  tbe  physical 
fitness  needed  to  perform 
major  operatic  roles  is  being 
careful  with  her  diet,  and 
she  prefers  a hotel  room 
which  has  a kitchenette. 
"One  of  the  difficulties  of 
travelling  is  what  you  eat  If 
you're  used  to  eating  a 
certain  type  of  food  its  hard 


to  have  to  depend  on 
restaurants,"  she  says. 

Unlike  many  singers,  Ms 
Smith  says  she  likes  to  have 
airconditioning  in  her  room 
in  a hot  climate.  “It  does  dry 
you  out,"  she  says,  “but  it's 
a choice  between  two  evils, 
and  heat  for  me  is  a greater 
evil  than  drying  out  because 
I know  what  to  do  about 
drying  out  - 1 keep  drinking 


water.  If  I really  dry  out 
then  I use  a salt  water 
gargle." 

Ms  Smith,  a Catholic, 
always  travels  with  her 
Russian  Orthodox  icons  and 
photographs  of  her  family. 
“It's  like  having  your  little 
cell  It's  part  of  you.  When 
you  have  photographs  and 
pictures  it  becomes  your 
own  environment.” 


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-Sr^SK- 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  IB  IV98 


THE  BUSINESS  OF  TRAVEL  10  i 

Getting  around:  Scandinavia  and  the  Bal 

tics 

' 

Financial  Times  correspondents  guide  the  traveller  around  some  of  region’s  main  business  districts,  offering 
the  first-time  visitor  and  weary  globetrotter  alike  tips  to  make  their  journey  a little  smoother 


SWEDEN 


By  Tim  3u1 


Visas 

Citizens  of  European  Union  countries  and  those  of  the  US, 


Japan  and  Switzerland  da  not  require  visas. 


Airlines 


Local  transport 

A well-developed  state  railway  system  offers  an  alternative 
to  airline  connections,  with  the  high-speed  X2000  inter-city 
train  connecting  the  capital  with  Gothenburg,  Malmo  other 
cities.  Stockholm  boasts  an  integrated  subway  and  bus 
system,  and  a new  high-speed  rail  link  to  Arlanda  airport  is 
due  to  open  next  year.  In  the  meantime,  the  airport  is 
served  by  regular  express  buses  and  taxis.  There  is  a fixed 
SKr350  taxi  fare  between  the  city  centre  and  the  airport, 
and  passengers  should  insist  on  paying  that  before 
beginning  their  journey. 


Hotels 

AH  the  main  business  cities  have  first  class  and  executive 
hotels,  with  the  SAS  Radisson  and  Scandic  chains  heavily 
represented.  In  Stockholm,  those  with  a larger  budget 
might  prefer  the  Grand  Hotel,  on  the  waterfront  opposite 
the  royal  palace.  But  there  are  equally  good  smaller,  and 
better  value,  hotels  scattered  around  the  city  for  travellers 
unwilling  to  pay  the  premium. 


Eating  out 

I Gamla  Stan,  the  island  old  town  in  the  centre  of  Stockholm, 
is  thick  with  small  restaurants  serving  international  and 
Swedish  cuisine.  Dining  out  is  expensive,  however.  Be 
prepared  to  pay  SKrl.QQG  for  a meal  for  two,  with  only 
average  wine.  Some  of  the  best  restaurants  are 
j concentrated  around  the  Ostermalm  district,  with  the 
I Sturehof  among  the  most  famous.  But  its  reputation  Is 
greater  than  its  food,  and  it  has  been  let  down  by  a truly 
I terrible  refurbishment 


NORWAY 


Norway  is  fiuned  for  its  legendary  fiords  and  endless  miles 
of  cross-country  skiing  tracks.  Oslo  is  the  political  and 
financial  capital,  the  west  coast  city  of  Stavanger  is  the 
centre  for  oil  companies,  while  Bergen,  Norway's 
second-largest  city,  is  considered  the  cultural  capital. 


Visas 


Visa  are  not  required  by  visitors  from  Europe  and  the  US 
unless  they  plan  to  stay  for  more  than  three  months.  Other 
nationalities  should  check  with  tbeir  local  embassies. 


Airlines 


Braathens  is  the  largest  domestic  airlines  and  the  second 
largest  airline  in  Norway  after  its  Nordic  rival 
Scandinavian  Airlines  System.  Most  leading  European 
airlines  also  offer  a daily  service,  main  airport  is  presently 
in  Fornebu,  just  20  to  30  minutes  outside  Oslo.  But  this 
changes  on  October  8 when  the  new  airport  opens  in 
Gardemoen,  more  than  an  hour  outside  the  city.  Taxis  will 
be  charging  as  much  as  NKrSOO. 


Local  transport 

Competition  between  airlines  has  in  some  instances  made  it 
possible  to  fly  more  cheaply  than  using  the  national  railway 
system.  NSB,  or  buses.  The  mountalneous  inland  east-west 
routes  and  small,  winding  coastal  roads  can  make  driving 
times  long  and  arduous,  but  are  worth  the  trouble  on 
smaller  stints  for  their  beauty  and  opportunity  to  spot  the 
occasional  moose.  There  are  also  a numerous  ferries 
playing  routes  between  Norwegian  coastal  cities  and  the 
main  Scandinavian  ports. 


Hotels 


The  highest  quality  hotels  in  Oslo  are  still  the  Hotel 
Continental  and  Grand  Hotel,  situated  on  opposite  sides  of 
the  central  street,  Karl  Johan,  in  between  the  Norwegian 
Parliament  and  the  Royal  Castle.  Both  are  within  walking 
distance  of  shopping  and  the  city  night  life  and  a short  taxi 
ride  to  most  businesses  outside  the  city  centre.  Also 
centrally  located,  SAS  Radisson  has  mar  business  hotels  by 
the  railway  station  and  downtown  Oslo.  It  also  has 
premises  in  most  of  the  main  Norwegian  cities. 


Eating  out 


Central  Oslo  offers  a large  number  of  dining  possibilities. 

I Tbe  pier  area,  Aker  Brygge.  offers  everything  from  fine  fish 
restaurants,  such  as  Lofoten  Fiskerestawant,  to  continental 
European  cuisine.  There  are  a number  of  fine  French 
restaurants  in  the  Frogner  area  of  Oslo.  Bagatelle  and  Le 
Canard  currently  being  among  the  most  popular.  Le  Canard 
Offers  the  possibility  of  private  dining  in  its  exlusive  wine 
cellar.  In  Stavanger.  Jans  Mat  & Vin  Hus  and  Caf  de  France 
offer  good  food. 


FINLAND 


by  iir-  bjn 


For  a population  of  less  than  9m.  Sweden  boasts  a surfeit  of 
large  companies  and  financial  institutions  that  attract 
business  travellers  - such  as  Volvo,  Ericsson,  Astra, 
Svenska  Handels  bank  en  and  Skandia.  Transport 
telecommunications  and  business  services  are  all  excellent 
- as  one  would  expect  from  one  of  Europe's  more  affluent 
countries  - and  English  is  spoken  widely  in  the  main  towns 
and  cities. 


An  extensive  domestic  route  network  is  served  by  a clutch 
of  carriers,  dominated  by  Scandinavian  Airlines  System,  the 
tri-nation  Nordic  airline.  But  growing  competition  has 
emerged  over  the  past  year  from  Braathens,  the  Norwegian 
carrier,  that  has  acquired  a controlling  stake  In  Transwede 
and  Malmo  Aviation.  Internationally,  SAS,  American  and 
Delta  all  offer  direct  flights  to  the  US.  SAB'S  membership  of 
the  six-carrier  Star  alliance  has  also  improved  onward 
connections  to  other  parts  of  the  world,  mostly  through 
Frankfurt  or  Copenhagen.  Increased  competition  has  also 
helped  reduce  notoriously  high  fores. 


Finland,  the  former  grand  duchy  of 
Russia,  will  end  the  century  holding 
the  presidency  of  the  European  Union. 
According  to  goverment  forecasts,  It 
will  also  approach  the  millennium 
enjoying  strong  GDP  growth,  modest 
inflation  and  relatively  low  interest 
rates.  Alone  in  the  Nordic  region, 
Finland  has  decided  to  become  a 
founder  member  of  the  European 
single  currency.  Increased  links  with 
Brussels,  coupled  with  the 
International  development  of  the 
country’s  telecommunications, 
shipbuilding  and  paper  industries  has 
led  to  a sharp  increase  in  international 
business  traffic.  Finnish  defeats  most 
linguists,  so  English  is  commonly 
spoken,  even  in  outlying  areas. 


national  airline,  offers  extensive 
domestic  and  international  services 
from  Helsinki.  It  also  serves 
Stockholm  from  Turku,  in  the  west, 
and  other  outlying  towns.  Recently, 
SAS  has  increased  its  challenge  to 
Finnair  by  acquiring  Air  Botnia.  the 
small  Finnish  regional  carrier,  and  by 
increasing  flight  frequencies  from 
other  parts  of  the  region.  Finnair  has 
responded  by  designating  Stockholm’s 
Arlanda  airport  as  its  second 
international  hub  after  Helsinki, 
serving  destinations  such  as 
Manchester,  Madrid  and  Brussels  from 
there.  The  Finnish  carrier  has  also 
signed  a code-sharing  agreement  with 
British  Airways,  offering  improved 
inter-continental  routings  from 
Helsinki,  via  London. 


There  is  no  rail  link  to  Helsinki's 
Vantaa  airport:  passengers  must  rely 
on  bus  or  taxi  links. 


Hotels 


Visas 


European  Union  citizens  do  not 
require  visas.  There  is  also  no 
requirement  for  visas  for  visitors  from 
the  US.  other  parts  of  western  Europe 
or  Japan. 


Airlines 

Finnair,  the  partially-privatised 


Local  transport 

Helsinki  offers  well  developed  road 
and  rail  links  with  all  parts  of  the 
country,  which  operate  smoothly  year 
round  in  spite  of  harsh  winter 
conditions.  An  ageing  but  efficient 
tram  system  rattles  round  the  capital, 
while  most  other  towns  offer  an 
integrated  bus  and  local  rail  network. 


Eating  out 

Helsinki's  poor  showing  in 
International  hotel  standards  is  more 
than  offset  by  excellent  restaurants. 
The  Cosmos,  founded  in  1924.  is  one  of 
the  best  places  to  find  traditional 
Finnish  and  Russian  cuisine,  such  as 
dried  reindeer  meat.  It  is  not  gourmet 
daring,  but  substantial  nonetheless. 
Further  upmarket,  the  Strindberg 
serves  world  class  nouveQe  cuisine, 
and  the  HavLsamanda  probably  the 
best  fish,  in  town. 


si>. 


6v  Vals.v*  S*b  -1 


mm 


The  Little  Mermaid  in  Copenhagen  appears  high  on  the  Est  of  attractions  for  most  visitors  to  the  city 


DENMARK 


By  Hilary  Barges 


In  Copenhagen  one  is  rarely  more  than 
10  minutes  walk  from  the  main 
government  offices,  the  head  offices  of 
the  big  banks,  the  royal  palace  of 
Amalienborg.  the  parliament,  the 
offices  of  the  large  commercial  and 
industrial  organisations  and  the  trade 
unions,  or  the  main  museums  and  the 
Tivoli  amusement  park.  The  city  owes 
much  of  its  charm  to  the  feet  that  the 
lay-out  of  the  centre  has  changed  little 
since  the  15th  century,  although  most 
of  the  buildings  are  18th  century  or 
later. 


Airlines 


Copenhagen's  Kastrup  international 
airport  is  the  hub  for  Scandinavian 
Airlines  System.  It  is  served  by  all  the 
leading  European  and  American 
airlines  and  many  of  the  leading  Asian 
ones.  The  domestic  terminal,  for 
flights  to  the  main  Jutland  cities,  is  a 
short  bus  ride  away. 


prestigious,  as  well  as  the  oldest,  of  the 
centrally  located  hotels  in 
Copenhagen,  while  the  SAS  Radisson 
Royal,  the  Palace,  the  Plaza,  the 
Phoenix,  and  the  Admiral  are  other 
central  hotels  popular  with  business 
people.  The  SAS  Radisson  Scandinavia 
is  just  off-centre  on  the  way  to  the 
airport 


Local  transport 


Eating  out 


Visas 


EU  nationals,  nationals  of  the  Baltic 
states.  Hungary.  Poland  and  the  Czech 
Republic,  nationals  of  the  US.  Canada 
and  Japan  do  not  need  visas.  Visitors 
from  all  African  countries,  Russia,  the 
former  Sonet  republics,  and  some 
Asian  and  South  American  and 
countries  do.  Check  with  the  local 
Danish  embassy. 


Copenhagen  taxi  drivers  are  closely 
regulated  and  honest.  It  is  IS  minutes 
from  the  airport  to  the  city  centre  and. 
depending  on  the  time  of  day,  costs 
about  $20  to  $25.  The  airport  bus  to  the 
central  station  costs  DKr50.  There  is  a 
good  local  bus  system  (have  DKrU 
ready  for  a short  journey)  and  efficient 
rail  services  to  suburban  areas. 


Hotels 

Hotel  d'Angleterre  is  the  most 


There  are  plenty  of  good  restaurants  in 
the  centre  of  Copenhagen.  Konrad’s  is 
the  latest  in-place  for  deep  pockets.  St 
Gertruds  Master.  Kommandanten. 
Pascal,  and  Philippe  can  all  be 
recommended-  None  is  cheap.  Turkish. 
Greek,  Italian  and  Chinese  restaurants 
offer  meals  at  modest  rates.  For  a local 
speciality,  try  Danish  lunch 
restaurants  for  variations  on 
smoerrebroed,  or  Danish  open 
sandwiches. 


ESTONIA 


By  Mate;  ViDor^A 


With  a touch  of  paint  applied  to  its 
medieval  buildings,  and  dozens  of  new 
cafes  and  restaurants  peppering  its 
narrow,  winding  lanes.  Tallinn’s  old 
town  has  regained  its  former 
splendour.  It  is  a compact  place,  and 
most  hotels,  banks  and  government 
ministries  are  within  a few  minutes 
walking  distance  of  each  other.  For  all 
Its  charms,  however,  Tallinn  is  a small 
town.  Trips  to  the  pristine  countryside 
or  the  islands  offer  a good  break  from 
the  capital. 


Airlines 


Hotels 


Arrival  and  departure  procedures  at 
Tallinn  airport  are  usually  rapid  and 
hassle-free.  Frequent  direct  flights  are 
available  to  and  from  Helsinki, 
Copenhagen  and  Stockholm,  and  it  is 
best  to  a catch  a connection  through 
these  cities.  Estonian  Air,  the  national 
airline,  flies  western  aircraft  on  direct 
routes  to  London  and  Moscow,  as  weO 
as  to  other  capitals  in  the  region. 


Visas 


Citizens  of  Scandinavian  countries,  the 
nationals  of  the  US  and  UK  and 
several  east  European  countries  can 
enter  Estonia  without  a visa.  The 
nationals  of  some  EU  countries  can 
obtain  90-day  visas  at  the  border  for 
about  DM1Q0.  The  holders  of  a valid 
visa  for  Latvia  or  Lithuania  can  enter 
Estonia  without  a visa. 


Local  transport 

The  airport  is  3km  from  the  city 
centre,  and  the  10-minute  ride  in  a taxi 
costs  about  DM5.  You  can  also  take 
the  hotel  shuttle  from  the  airport  for 
about  DM3.  The  centre  of  Tallinn  is  so 
small  most  destinations  are  within  five 
minutes  walking  distance.  All  taxicabs 
have  meters  and  most  drivers  are 
scrupulously  honest. 


For  business  facilities,  pick  the 
26-story  Olympia.  The 
Scandinavian-owned  hotel  has  several 
restaurants  and  a lap  pool  overlooking 
the  Baltic  sea.  The  Palace,  on  the  edge 
of  the  old  town,  Is  convenient  for  its 
proximity  to  business  and  government 
buildings.  For  charm,  pick  the  Park 
Consul,  a renovated  I5th  century 
building  on  a cobbled  sloping  side 
street  in  the  old  town.  Prices  at  the 
three  hotels  start  at  about  DM130. 


Eating  out 

Most  hotel  restaurants  serve  decent 
fare,  especially  fish.  For  a pre-war 
atmosphere  and  local  cooking. 
Grandma’s  Place  (Vanaema  Juures)  is 
a favoured  destination  in  the  old  town. 
There  are  also  a number  of  reasonably 
good  ethnic  restaurants  In  town, 
including  Indian  and  Chinese. 


“Time  to  flv  the  tiger” 


LATVIA 


;fiv 


With  its  art  nouveau  architecture  and  sprawling  old  town, 
Riga  has  a somewhat  pre-war  atmosphere.  Riga  is  the 
biggest  city  in  the  Baltics,  and  the  engine  of  Latvia’s 
economic  growth.  Many  foreign  companies  have  located 
their  regional  offices  in  the  city. 


In  spite  of  the  usual  smattering  of  SAS 
Radisson  and  InterContinental  hotels, 
Helsinki  is  not  blessed  with  many 
top-class  places  to  stay.  In  terms  of 
business  services,  the  best  option  is 
probably  the  Strand  InterContinental 
near  the  city  centre.  But  for  pure 
opulence,  travellers  might  consider  the 
small  Palace  Hotel  built  for  the 
summer  Olympics  in  1952. 


Visas 

Citizens  of  the  US.  UK  and  Scandinavian  countries  can 
enter  Latvia  for  up  to  90  days  without  a visa.  Others  must 
apply  for  a visa  at  the  local  Latvian  embassy.  Fees  range 
from  $15  to  $90.  The  citizens  of  some  countries  may  have  to 
present  a letter  of  invitation. 


.i  -sr  .■££ 


Airlines 

Riga  has  good  connections  with  Helsinki  and  other 
Scandinavian  capitals.  Swissair  and  Austrian  fly  direct 
from  Zurich  and  Vienna  to  Riga  several  times  a week.  Air 
Baltic,  the  local  carrier,  flies  western-made  aircraft  on 
direct  routes  to  London  and  capitals  In  the  region. 


MSB 


Local  transport 

The  15km  taxi  ride  from  the  airport  to  downtown  Riga  costs 
about  $14.  Cab  drivers  are  not  necessarily  eager  to  use  a 
meter,  so  it  may  be  best  to  negotiate  the  price  before  you 
leave,  or  pick  a licensed  taxi.  If  your  company  travel 
department  believes  you  are  wasting  money  on  frivolous 
taxi  rides  you  can  experience  Riga's  public  transport  by 
taking  bus  No  22  into  town  for  30  US  cents. 


i* 


.. : ■CT'tt 

. ■-“•Afaae- 


Hotels 

The  SAS  Radisson,  which  sits  across  the  river  Daugava 
facing  the  old  town,  sets  the  standard  in  Riga  as  far  as  - 
business  facilities  and  service  goes,  with  rooms  starting  at 
about  $130.  It  has  an  excellent  restaurant  and  pool.  In  the 
same  range.  Hotel  de  Rome  generally  lives  up  to  its 
pretentious  name.  There  are  other  hotels  in  the  old  town 
with  rooms  starting  at  about  $90. 


-**■  & 
-Jr ' 

- m. 


Eating  out 

Fish  is  always  a good  bet  in  Riga.  Zivju  Restaurant  in  the 
old  town  has  a wide  selection  of  fish  and  lobster,  plucked 
right  out  of  an  aquarium.  Or  try  the  elk  steak  in  the 
wood-panelled  Otto  Schwartz,  on  the  seventh  floor  of  Hotel 
de  Rome. 


-f-tr  i*  W 


. <*■*?*(£  . 

■; 

- msSFt! 

- - -.'iMUf'.-. 


LITHUANIA 


•By  Mate;  Vipot^ik 


Vilnius  is  a slow-paced  European  city,  and  its  large, 
church-strewn  old  town  is  perfect  for  getting  lost.  Most 
businesses,  banks,  and  government  offices  are  located  on  or 
around  the  central  Gedimino  street  Lithuania  has  been 
slower  in  liberalising  its  economy  than  Estonia  or  Latvia 
but  it  is  making  valiant  efforts  to  catch  the  EU-boond 
bandwagon.'  '''  “ 


Sack  to  the 


Visas 


>1^ 


Citizens  of  the  US.  UK  and  several  European  countries  do 
not  require  a visa.  EU  citizens  can  secure  a visa  at  the 
border  for  $20.  The  visa  list  is  constantly  changing  so  it  is 
best  to  contact  the  local  Lithuanian  embassy  for  details 
before  travelling. 


tmm 1 


Airlines 


British  Airways,  Lufthansa,  and  SAS  have  direct  flights 
into  Vilnius,  while  Lithuanian  Air  has  jettisoned  Tupolevs 
for  Boeings  and  flies  direct  to  London,  Kiev,  Moscow  and 
Tallinn. 


Local  transport 


Local  taxi  drivers  tend  to  be  somewhat  unpredictable  in 
their  choice  of  route  and  charging  structure,  so  it  may  be 
best  to  hire  a licensed  Ekspress  taxi  at  the  airport  The 
10-minute  ride  into  town  should  cost  about  $5,  or  you  can 
take  bus  No  2.  Downtown  streets  are  usually  clogged  with 
traffic  - it  may  be  faster  to  walk. 


a • 


Hotels 

The  new  SAS  Radisson.  housed  in  a restored 
t urn -of-th e-century  building.  Is  a notch  above  the  rest  with 
rooms  starting  at  $150.  The  Stikliai,  on  a cobblestone  street 
in  the  heart  of  what  was  once  the  Jewish  quarter,  also  has 
rooms  starting  at  $150. 


Eating  out 

The  kitchen  at  the  SAS  Radisson  is  manned  by  a former 
cook  to  the  Queen  of  Denmark,  and  it  shows.  The 
restaurant  at  the  Stikliai  is  very  good.  too.  There  is  a 
variety  of  ethnic  restaurants.  Including  Georgian,  Italian, 
and  Indian,  and  one  cannot  go  wrong  with  meat  and 
potatoes  in  a Lithuanian  restaurant 


^ .m*k 


The  World  Trade  Centre  in  Stockholm 


Rkw  Verortra  OamuQ 


-***$*«#••■ 

; 

- 

*-»*y  ] 

- std* 


t>  v£&_ 


U ...V... 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


XI 

j;--,  -■•Jw&.jiy-'i 


Getting  around:  Scandinavia  and  the 


If  your  business  trip  spans  a weekend  you  might  have  the  opportunity  to  explore  some  of  the  pleasure 

of  your  host  country.  Here  FT  correspondents  offer  some  suggestions 

Arriving  in  Stockholm  with  some  Viking  style 


Tim  Burt  find  his  sea-legs  at 
the  beginning  of  his  tour 
of  the  Swedish  capital 


The  old  wooden  vessel 
groaned  on  the  swell  A few 
wooden  platters  of  food  skid- 
ded across  the  deck,  but  the 
dragonhead  prow  soon 
righted  itself  and  turned 
towards  the  archipelago. 

Rickard  Engberg  smiled 
broadly,  lifted  a roughly- 
fashioned  horn  and  sounded 
the  departure  from  Stock- 
holm of  Svea  Viking,  the 
world’s  largest  longship. 

For  Engberg  and  his  busi- 
ness colleague  Steflan  Lyres- 
tam,  the  launch  tiifo  summer 
o(  the  33-metre  vessel  marks 
the  end  of  an  odyssey  linked 
to  a period  in  history  more 
than  1,000  years  ago. 

The  two  sailing  enthusi- 
asts decided  in  the  mid-1990s 
that  Sweden  and  its  capital 
should  have  a flagship  to  cel- 
ebrate its  Viking  heritage. 
Although  some  histrians  and 
media  critics  have  scorned 
their  efforts,  they  have  spent 
the  past  two  years  convert- 
ing a wartime  ferryboat  - 
which  saw  action  in  the 
D-Day  landings  - into  a rep- 
lica longship. 

“It  has  almost  killed  us, 
but  it  Is  quite  something  to 
launch  the  largest  Viking 
ship  seen  in  hundreds  of 
year,"  said  Engberg. 

He  has  been  hurt  by 
criticism  in  some  Swedish 
newspapers  that  the  duo 
have  created  little  more 
than  a floating  theme 
restaurant.  Sweden  has 
never  been  a country  to 
cherish  entrepreneurs  but 
this  is  one  tourist  project 


that  deserves  to  succeed. 

Given  the  number  of  visi- 
tors ready  to  sail  on  the  Svea 
Viking,  whether  on  its  spar- 
tan wooden  deck  or  in  its 
cavernous  oak  hold.  Engberg 
and  Lyrestam  believe  they 
will  have  the  last  laugh  - 
even  if  they  do  not  become 
rich  in  the  process. 

Watching  the  envious 
glances  of  passengers  on 
passing  sight-seeing  boats,  it 
soon  becomes  clear  that 
Viking  heritage  still  exer- 
cises a powerful  tug  on  tour- 
ist sentiments.  But  whether 
travelling  by  longship  or 
modem  commuter  ferry, 
many  of  the  passengers 
share  a common  destination 
- the  Stockholm  archipel- 
ago. 

The  city,  sitting  on  the 
edge  of  the  Baltic  Sea,  is  the 
gateway  to  a collection  of 
24,000  islands  and  skerries, 
many  of  them  no  more  than 
granite  pimples  marooned  in 
the  ocean. 

For  some  Swedes,  the  only 
genuine  archipelago  experi- 
ence is  to  spend  a week  or 
two  isolated  in  an  austere 
wooden  hut  on  one  of  these 
outcrops.  The  absence  of 
home  comforts  such  as  flush- 
ing toilets  or  central  Hunting 
helps  one  discard  - they 
argue  - the  veneer  of  mod- 
em life,  rather  like  a snake 
shedding  old  skin. 

Thankfully,  that  has  not 
been  a view  shared  by  every- 
one. Knut  Wallenberg,  for 
one,  clearly  thought  the 
back-to-natnre  brigade  were 


Sailing  in  peace:  Rickard  Bigberg  with  his  Svea  Viking  kingship,  constructed  from  a second  world  war  ferryboat 


a few  crackers  short  of  a foil 
smorgasbord.  More  than  100 
years  ago.  the  director  of 
Stockholm’s  Enskilda 
Banken  and  member  of  the 
Wallenberg  dynasty  decided 
that  what  the  archipelago 


really  needed  was  a grand 
hotel. 

So  he  built  a white-tow- 
ered palace,  drawing  on  his 
holiday  memories  from 
Monte  Carlo,  which  happily 
remains  opens  today.  The 


Back  to  the  beaches 

Balts  are  rediscovering  the  unspoilt  beauty  that  has  long  lain 
hidden  in  Soviet  era  security  zones,  says  Matej  Vipotnik 


The  Baltic  states  have 
traditionally  been  Moscow’s 
window  to  the  west.  Riga 
was  tsarist  Russia's  top  com- 
mercial port,  and  by  the 
1930s  newly-in  dependent 
Estonia  and  Latvia  had 
become  prosperous  trading 
republics. 

But  the  Balts’  contact  with 
the  sea  was  severed  when 
Soviet  forces  occupied  the 
region  during  the  second 
world  war.  To  prevent  locals 
from  fleeing.  Stalin’s  troops 
scuttled  most  seafaring  ves- 
sels. Swathes  of  coastal  terri- 
tory became  restricted  mili- 
tary areas,  with  bunkers  and 
flashlights  scanning  the 
horizon  for  incoming  invad- 
ers and  outgoing  Balts. 

It  was  not  until  the  col- 
lapse of  the  Soviet  Union 
that  the  Balts  could  once 
again  indiscriminately  ven- 
ture to  the  beach  and  loll  in 
the  sun.  There  remained  the 
occasional  pile  of  rubble 
where  bunkers  had  stood,  a 
few  standing  observation 
posts,  stripped  bare  by  the 
departing  Red  Army,  and  a 
few  scuttled  submarines  off 
the  coast. 

That  aside,  the  high  cliffs 
and  sandy  beaches  were 
hardly  violated.  No  camping 
sites,  picnic  tables,  or  gar- 
bage dumps  spoiled  the  sea- 
front Nor  has  the  coastline 
changed  much  since  inde- 
pendence, and  indeed  it 
remains  a must-see  for  Bal- 
tic travellers. 

Tallinn's  old  town,  with  its 
many  churches  on  narrow 
cobblestone  streets  is  charm- 
ing but  it  is  also  await  and 
can  be  traversed  left  and 
right  in  an  afternoon.  A trip 
to  Estonia’s  islands  is  the 
solution  for  the  visitor. 

Ferries  for  the  islands 
leave  from  Happsalu,  a cou- 
ple of  hours  drive  sooth  of 
Tallinn.  About  10km  from 
the  coast  lies  Vormsi,  the 
smallest  of  Estonia's  four 
large  islands.  A ghost  island 
after  its  mainly  Swedish  pop- 
ulation fled  in  1944.  it  today 
has  a few  hundred  perma- 
nent inhabitants.  At  a mere 
93  sq  km,  travellers  can 
revel  in  VormsTs  pristine 
nature  during  a bicycle 
excursion. 

HHiitiwa-  fa  Estonia's  sec- 
ond largest  island,  but  .it  is 
also-  sparsely  populated. 
Because  of  limited  popula- 
tion transfers,  during  Soviet 
times, ' it  i$  said  the  island 
has  retained  the  values  of 
old,  independent  Estonia. 
The  f 1,000  or  so  locate,  most 
of  whom  live  on  the  coast, 
ore  reputed  on  the  mainland 
to  be  easygoing  and  courts- 


Grand  Hotel  at  SalfajObaden, 
inaugurated  by  King  Oscar  I 
in  1883.  commands  a hand- 
some position  at  the  centre 
of  Baggen’s  Bay.  It  is  sepa- 
rated from  the  city  centre  by 
about  10  miles  and  50  years. 

Much  as  Mr  Wallenberg 
hoped,  it  offers  a convenient 
and  somewhat  un-Swedish 
_ . escape  from  Stockholm.  Cer- 
tainly, the  gilt  edged  dining: 
room  is  more  Versailles  than 
Velamsund,  and  the  first 
floor  cocktail  bar  smacks 
more  of  the  palm  court  era 
than  some  slick  Scandina- 
vian bistro. 

The  fact  that  the  Grand 
has  seen  better  days  - the 
carpets  are  threadbare  In 


places  and  the  gilt  peeling 
away  - enhances  the  feel  of 
a Mediterranean  hideaway, 
if  anything.  It  is  like  a rather 
haughty  old  arlsto.  trying  to 
keep  up  appearances  in  spite 
of  the  ravages  of  time. 

Indeed,  the  only  nouvelle 
thing  about  the  place  is  the 
cuisine.  But  many  visitors 
would  probably  prefer  some- 
thing more  substantial  than 
the  isolated  nuggets  of  fish 
or  fowl  served  on  a huge 
white  platter  - even  if  it 
does  taste  splendid. 

In  any  case,  there  is  an 
altogether  more  wholesome 
eatery  tucked  on  the  water- 
front,  just  around  the  cor- 
ner. And  the  Gulan  Pavfljon- 


gen  restaurant  is  heavier  on 
the  stomach  and  lighter  on 
the  wallet  than  the  Grand. 

It  is,  moreover,  only  a 
short  stroll  across  the  bridge 
from  Restaurantholmen,  the 
tiny  island  that  is  home  to 
Saltsjdbaden's  Frihiftsbad,  a 
historic  swimming  area. 

In  1912,  the  rickety 
wooden  amphitheatres  were 
the  site  of  the  Olympic 
swimming  events.  Spectators 
these  days  are  frowned  upon 
as  the  open  air  bath  houses, 
one  for  women  and  one  for 
men.  are  supposed  to  be 
swimsuit-free  zones. 

Although  shielded  dis- 
creetly from  the  mainland, 
the  flesh  laden  terraces  offer 


PMm  Rrgua  wu 

a full  frontal  view  to  the 
passing  yachts  and  cruisers. 
But  this  being  Sweden,  no- 
one  much  cares.  Nakedness 
has  been  divorced  from  sex 
and  swimmers  come  to  the 
baths  to  do  just  that  - swim. 

Even  in  mid-summer,  how- 
ever. the  water  temperature 
at  Saltsjdbaden  is  enough  to 
remind  you  why  the  Vikings 
left  more  than  a 1,000  years 
ago  in  search  of  wanner 
dimes.  i 

Diving  into  the  Baltic  in 
nothing  but  nature's  wetsuit 
suddenly  brings  to  mind' the 
meal  consumed  a few  hours 
earlier  on  the  country’s  lat- 
est longship.  It  was  cold 
meat. 


Taffirai  offeis  attractive  sight-seeing,  but  the  visitor  may  fled  more  of  interest  out  of  town 


ous  - habits  that  were 
diluted  on  the  mainland  by 
the  inflow  of  immigrants 
from  the  East. 

Saaremaa,  the  largest 
island,  shares  Hliurnaa's  old 
world  atmosphere.  The 
island  was  once  a restricted 
military  zone  hosting  a radar 
installation.  Foreigners 
could  not  travel  to  Saare- 
maa, and  Estonians  needed  a 
permit  to  visit  the  Island. 
Interspersed  in  the  densely 
wooded  landscape  are  forms 
and  plenty  of  ruins  from  cen- 
turies past  The  old  capital 
Kuressare.  sports  a 14th  cen- 
tury castle,  and  settlements 
on  the  island  have  been 
traced  back  several  thou- 
sand years.  Determined  visi- 
tors can  scoot,  for  saare- 
raaa’B  sandy  beaches. 

Legend  has  it  that  Napo- 
leon said  Riga  could  be  a 
suburb  of  London.  It  is  not 
dear  whether  the  remark 
was  intended  as  a compli- 
ment, but  Riga's  old  town  is 
certainly  a happy  mixture  of 
styles.  Its  neoclassical  and 
art  nouveau  architecture 
still  captivate  travellers.  The 
austere  and  colourful 
facades  of  the  old  town  are 
in  sharp  contrast,  however, 
with  grim  housing  blocks  on 


Riga's  outskirts,  buflt  during 
Soviet  times.  In  the  summer, 
Riga's  proletariat  flees  the 
squalor  to  loll  in  the  sun  on 
the  beaches  of  Jurmala.  a 
half  an  hour  drive  away. 

Jurmala  was  once  a 
favoured  destination  of  com- 
munist Soviet  apparatch- 
niks.  who  travelled  there  to 
take  the  waters  in  thermal 

baths.  These  days  Jurmala 
seems  on  an  upswing,  and 
many  of  its  charming 
wooden  houses  have 
received  a touch  of  fresh 
paint.  The  sea  water  is  also 
rumoured  to  have  improved 
in  spite  of  the  fact  that 
Riga’s  raw  sewage  flows  into 
the  sea  just  a few  kilometres 
from  the  resort. 

For  cleaner  waters,  it  is 
advisable  to  head  westward 
into  the  Kurzene  region-  To 
begin  with,  the  coast  is  dot- 
ted with  small  villages, 
where  the  gardens  of  lovely 
farmhouses  extend  right  up 
to  the  sea.  The  further  you 
go,  however,  the  fewer 
people  you  will  meet. 
Sparsely  populated,  the 
thickly  forested  north-west- 
ern tip  of  the  region  was  in 
Soviet  times  a dosed  mili- 
tary region. 

It  is  perhaps  in  Utbuania. 


that  the  most  spectacular 
swathe  of  beach  in  the  Bal- 
tics can  be  found.  It  is  a pen- 
insula, called  the  Curonian 
Spit,  or  Neringa,  running 
parallel  to  the  Lithuanian 
coast.  Formed  about  5,000 
years  ago  by  sand  accumula- 
tion in  shallow  waters  just 
off  the  mainland,  the  penin- 
sula begins  In  Kaliningrad, 
and  runs  northward  for 
about  100km.  Reaching  up  to 
66  metres  height  at  certain 
points  the  highest  sand 
dunes  in  Europe  this 
remarkable  area  is  nowhere 
more  than  4km  wide. 

Accommodation  can  be 
fonnd  at  three  villages  on 
the  Lithuanian  side,  a 
favoured  destination  being 
the  fishing  village  of  Nida. 
with  characteristic  that  eh  ed- 
roof  houses.  Thomas  Mann 
spent  three  summers  in  one 
of  those  houses  in  the  early 
19305.  writing  Joseph  and  His 
Brothers. 

it  is  perhaps  difficult  to 
Sod  many  good  things  to  say 
about  the  Soviet  Union  but 
the  creation  of  vast  closed 
military  areas  did  at  least 
conspire  to  preserve  the 
environment  of  some  of  the 
Baltic  region's  most  scenic 
spots. 


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■ ■ «» 084560915 15 


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Paul  Taylor  looks  at  some  of  the  portable  gadgets  which  help 
keep  busy  travellers  up  to  date  with  events  while  on  the  move 


The  rapid  adoption  of  the 
internet  and  e-mail  as  a vital 
form  of  business 

CQWimiinirarinnn  has  made  it 

even  more  important  to  stay 
In  touch  while  travelling. 
After  all,  returning  to  the 
office  after  a trip  to  find 
megabytes  of  unprocessed 
e-mail  is  not  much  more 
appealing  than  returning  to 
a mountain  of  paper. 

Indeed,  the  provision  of 
“anywhere,  anytime, 
anyhow1*  access  to  corporate 
Information  technology 
resources,  including 
databases  and  in-house 
Intranets  for  an  increasingly 
itinerant  workforce  has 
become  an  important 
business  objective  for  many 
IT  managers. 

Fortunately,  during  the 
past  decade,  a wide  range  of 
electronic  gadgets  has  been 
developed  to  make  this 
dream  more  achievable. 

These  devices  range  from 
notebook  portable  PCs  and 
pocket  sized  machines  such 


as  Psion’s  Series  5 machine, 
to  devices  such  as  Nolria’s 
Communicator.  which 
combine  the  attributes  of 
both  PCs  and  digital 
telephones. 

Perhaps  the  biggest  aid  to 
keeping  in  touch  while  on 
the  move  has  been  the  devel- 
opment of  digital  wireless 
telephone  networks,  includ- 
ing those  based  on  the  GSM 
(Global  System  for  Mobiles) 
standard. 

GSM  networks  have  been 
built  across  Europe  and  in 
many  other  parts  of  the 
world,  enabling  business 
travellers  to  use  a single 
handset  and  Toam’  from  one 
country  to  the  next  Since 
these  networks  were 
launched  in  the  mid-1990s, 
almost  100m  GSM  handsets 
have  been  sold  around  the 
globe,  including  some  such, 
as  Motorola’s  StarTac  device 
which  fit  in  a shirt  pocket. 

While  GSM  was  primarily 
designed  for  voice  communi- 
cations, it  also  supports  digi- 


tal messaging  using  the 
Short  Message  Service, 
thereby  enabling  a GSM 
phone  to  be  used  as  a sophis- 
ticated two-way  alphanu- 
meric pager. 

In  the  Nordic  region  in 
particular,  the  SMS  feature 
is  being  used  to  deliver  ser- 
vices such  as  telephone 
banking,  electronic  com- 
merce and  e-mail  forward- 
ing. 

GSM  networks  have  also 
proved  a reliable  and  partic- 
ularly hoTfhio  alternative  to 
fixed-wire  data  communica- 
tions for  sending  and  receiv- 
ing information  both  for  por- 
table PCs  and  the  new 
generation  of  hybrid  devices 
such  as  the  Nokia  Communi- 
cator which  combine  both 
telephone  and  PC  functions. 

Even  more  powerful 
pocket  communicators  are 
expected  to  emerge  from  the 
recently-announced  Symbian 
partnership  which  brings 
together  Psion,  the  UK-based 
pocket  PC  group,  and  the 


leading  telephone  handset 
manufacturers.  Motorola, 
Nokia  and  Ericsson.  While 
tbe8e  maehinim  will  high- 
light the  increasingly  rapid 
convergence  of  digHaT  tele- 
phony and  computing,  some 
users  will  probably  prefer  to 
use  separate  GSM  handsets 
and  portables. 

Traditionally,  portable  PCs 
and  cellular  telephones  have 
been  linked  using  a PC  card 
modem  and  a cable  and 
adding  to  the  bag  of  wires 
and  connectors  that  most 
portable  PC  ’road  warriors' 
need  to  cany. 

However,  during  the  past 
six  months,  several  alterna- 
tives have  emerged,  includ- 
ing the  use  of  infra-red  com- 
munications to  connect  the 
handset  and  PC  and  the 
development  of  PC  card 
phones  which  you  can  plug 
directly  into  the  PC  card 
slots  in  portable  rru>rhinp<i 

The  portable  PC  market 
itself  is  changing  rapidly. 
Portable  PCs  have  firmly 


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established  themselves  as 
mainstream  business  tools,, 
helping  companies  other 
organisations  to  boost  cus- 
tomer service,  improve  pro- 
ductivity and  provide  addi- 
tional workforce  flexibility. 

Meanwhile,  the  business 
traveller  no  longer  has  to 
make  do  with  portable  PCs 
that  suffer  ft-om  disadvan- 
tages over  their  desktop 
counterparts.  During  the 
past-  year,  the  performance 
gap  between  desktop 
machines  and  tturir  portable 
counterparts  has  narrowed 
considerably. 

The  latest  machines  from 
market  leaders  such  as  Tosh- 
iba. Compaq  and  IBM  are 
now  powered  by  tbe  Pen- 
tium n microprocessors  and 
equipped  with  big  14-inch 
colour  screens  and  high 
speed  CD-Rom  drives- 
Some  companies  are  even 
replacing  desktops  with  por- 
tables, often  sold  with  dock- 
ing stations  or  port  replica- 
tors enabling  then  to  {dug 
into  corporate  networks  eas- 
ily. For  example,  Dell  Com- 
puter, whose  highly  success- 
ful "Latitude'  notebooks  have 
helped  the  company  climb 
Into  the  top  tier  of  mobile 
computer  vendors  leaders, 
says  that  almost  three-quar- 
ters of  its  machines  are  sold 
with  port  replicators. 

As  portable  PC  makers 
scramble  to  differentiate 
their  products,  there  has 
also  been  a proliferation  of 
types  of  machines. 

One  marked  trend  is 
towards  ultra-thin  machines 
Buch  as  those  launched 
recently  by  Mitsubishi,  Hew- 
lett-Packard and  Sony.  Most 
of  these  machines  are  sup- 
plied with  multi-tier  bases 
enabling  the  user  to  add 
CD-Rom  drives  and  multime- 
dia functions  to  the 
machines  when  they  are 
used  in  a fixed  location 
rather  than  on-the  move. 

Other  manufacturers  have 
taken  a different  approach 
towards  reducing  the  size 
and  weight  of  portable  PCs. 
Toshiba's  sub-notebook  Por- 
tage machine  provides  the 
ideal  compromise  between 
functionality  and  size  for 
many  travellers,  while  its 
Libretto  machine  packs  the 
power  of  a Windows  desktop 
into  a package  about  the  size 
(X  a paperback  novel 
However,  business  travel- 
lers whose  computing 
requirements  while  on  the 
move  are  limited  to  basic 
office  functions  such  as 
e-mail,  meeting  scheduling, 
diary  functions  and  looking 
up  or  updating  a contacts 
list,  the  new  generation  of 
handheld  devices  could  pro- 
vide the  solution. 

Psion,  which  helped  pio- 
neer this  market  segment 
with  its  Series  3 machines,  is 
still  winning  awards  for  its 
latest  generation  of  pocket 
PCs  including  tbe  Series  5. 

However,  the  UK-based 
group  now  faces  more  com- 
petition  from  companies 
such  as  3Com.  wh  ose  Palm 
m organiser  has  Just  been 
launched,  and  from  a flood 
Of  handheld  PCs  and  Palm 
PCs  built  around  Microsoft 
Windows  CE2  operating 
systems  designed  to  aug- 
ment rathe-  than"  replace  a 
desktop  machine. 

These  CE2  machines 
include  models  from  Hew- 
lett-Packard. Compaq,  Sharp. 
LG  Eltronlcs  and  Philips  and 
provide  the  user  with  a 
familiar  Windows-style  inter- 
face and  software  which 
enables  them  to  exchange 
data  with  a desktop  PC  ess- 
ay- 

But  for  the  ultimate  in 
portability,  the  Rolodex  Elec- 
tronics Rex  is  hard  to  beat 
This  credit  card-sized  device 
includes  a contact  book, 
diary  and  other  features  end 
fa  designed  to  fit  into  a PC 
card  slot  for  updating. 


Amsterdam  - 
Singapore 
Moscow  . 
London 
Vtfenda 

Frankfort . ■ •" 

London. " 
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fflrnfogham,  UK 
Eastbourne 
Berfei  • 


Nuremberg 
Bologna  ~ 
London 
Dublin 


Bfrmtegham,  UK 


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FIN  ASOCIAL  TIMES  REVIEW 


V*1 


FACING  EXTINCTION 

Climate  change,  fossil 
fuels  and  the  alternatives 
§J-  pages  4-6 


LAND  OF  OPPORTUNITY 

In  south  Asia,  demand 
far  outstrips  supply 
page  7 


WORLD  ENERGY 


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The  only  thing  lower  than  prices 
is  morale.  It  is  time,  writes 
Robert  Corzine,  for  the  industry 
to  show  its  mettle 

Oil  in 

troubled 

water 


Tough  times"  Is  bow  most 
executives  would  describe 
current  conditions  in  the 
international  oil  industry.  With 
crude  prices  languishing  in  the 
$12- (14  a barrel  range,  companies 
in  Europe  and  elsewhere  have 
seen  their  cash  flows  - the  main 
5 determinant  of  exploration 
activity  - plummet,  along  with 
profits. 

Against  a backdrop  of  growing 
global  economic  uncertainty, 
traditional  investors  in  the 
industry  have  become  jittery,  a 
development  reflected  in  the 
relatively  low  share  prices  of 
most  companies  in  the  sector. 

The  widely  held  expectation 
that  Saudi  Arabia  and  other  key 
members  of  the  Organisation  of 
Petroleum  Exporting  Countries 
(Opec)  would  somehow  bale  out 
the  Industry  has  waned  in  recent 
weeks,  as  oil  prices  once  again 
wallowed  near  fresh  lows  for  the 
year.  In  recent  days  calls  for  ' ■ 
industry-wide  action  to  contain 
costs  have  become  louder  as 


pr 

w 


executives  ponder  the  unwelcome 
thought  that  prices  could  stay 
low  for  a prolonged  period. 

In  the  absence  of  a significant 
supply  disruption  in  a 
significaant  ofl  producing  state, 
many  observers  believe  it  will 
take  some  time  before  the 
overhang  of  crude  oil  and  refined 
product  inventories  that  is 
depressing  prices  will  be  pared 
back  to  more  normal  levels. 

In  Europe,  long  seen  as  one  of 
the  higher  cost  ail  areas,  the 
gloom  surrounding  the  oil  price 
has  been  compounded  by 
uncertainty  about  government 
attitudes  towards  the  mainly 
offshore  oil  and  gas  Industry. 
Over  the  past  year  new 
governments  in  Norway, 

Europe’s  biggest  producer  and 
the  second  largest  crude  exporter 
in  the  world,  and  the  UK  have 
unsettled  the  industry. 

- In  Norway  the  new 
government  said  it  wanted  to 
rein  in  the  pace  of  expansion  in 
the  industry,  which  was 


✓ 


threatening  to  destabilise  the 
nonoil  economy.  With  SO  years  of 
reserves,  Norway  is  in  an 
enviable  position.  But  companies 
argue  that  it  must  continue  to 
expand  into  the  more  remote  and 
technologically  challenging  areas 
to  maintain  its  position. 

Although  Norway,  in  common 
with  other  oil  producing  states  in 
northwest  Europe,  is  seen  as  a 
high  cost  producer,  the  prospect 
of  finding  large  fields  has 
ensured  continued  interest  in  the 
country’s  offshore  sector.  Bui 
this  year’s  price  falls  have 


undermined  confidence.  Marit 
Amstad,  Norway's  oil  minister, 
recently  acknowledged  that  "the 
present  oil  market  situation  is 
characterised  by  uncertainties 
and  unrest". 

Norway's  main  response  to 
falling  prices  has  been  a renewed 
emphasis  on  technology, 
although  the  strategy  has 
produced  mixed  results. 

Although  new  technology  should 
help  the  country  to  extract  53m 
barrels  oradditional  oil  from  the 
Norwegian  shelf,  there  have  been 
more  than  a few  failures, 


especially  with  the  floating 
production  systems  that  have 
become  increasingly  popular  in 
recent  years  in  spite  of  teething 
problems. 

The  Balder  field  being 
developed  by  Esso  has  been 
delayed  and  is  expected  to  cost 
an  additional  NKr3bn  when  it 
finally  comes  on  stream  in  1999, 
while  Staton’s  Aasgard  project  is 
now  expected  to  cost  NKi33.6bn. 
rather  than  the  original  estimate 
of  NKr27bn. 

Norsok,  the  industry-wide 
initiative  to  cut  costs,  has  been 


partially  successful,  although 
Gunnar  Berge,  director  general  of 
Norway's  ofl  directorate,  has 
recently  questioned  whether  the 
industry  has  succeeded  in  finding 
the  best  way  to  organise  alliances 
between  the  oil  producers  and 
their  contractors. 

Such  sentiments  are  echoed  in 
the  UK.  where  a similar  initiative 
- known  as  Crine  - has  been  in 
existence  since  the  last  price 
collapse  in  in  the  early  1990s. 
Although  it  was  formed  to  bring 
down  the  costs  of  development 
through  common  practices  and 


standards,  many  believe  its 
greatest  achievmant  has  been  to 
break  down  some  of  the  barriers 
that  existed  between  oil 
companies  and  their  contractors. 

As  in  Norway,  few  believe 
those  relationships  are  as  open 
and  trusting  as  they  could  be. 
“The  industry  has  changed  and 
for  the  better."  says  Syd  Fudge, 
head  of  the  Offshore  Contractors 
Association,  the  trade  group  for 
offshore  fabricators  and 
suppliers.  “But  there  is  a long 

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WORi  F‘  ENERGY  -> 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


The  North  Sea:  UK 


UK  • by  Robert  Corzine 


Activity  no 
disguise  for 
high  anxiety 


Behind  the 
serenity  suggested 
by  busy  yards  and 
rigs  there  is  much 
concern 

Low  oil  prices  and 
uncertainty  over  the  tax 
plans  of  the  government 
have  taken  their  toll  on  the 
UK's  oil  and  gas  industry 
this  year. 

Outwardly,  the  industry  -is 
working  flat  out.  There  are’ 
no  signs  of  drilling  rigs 
being  stood  down  and, 
although  some  workers  are 
being  laid  off  in  the  offshore 
contracting  industry,  many 
yards  remain  busy. 

But  below  the  surface 
there  is  a high  degree  of  anx- 
iety and  uncertainty  that 
will  be  only  partially  lifted 
by  the  government’s  deci- 
sion this -week  to  cancel 
plans  to . increase  offshore 
taxes.  Although  it  retnoves 
one  big  source  of  uncer- 
tainty, there  is  a separate 
review Britain's  energy 
sector  that  could  still  hatie  a 
big  impact  on  future  devel- 
opments'pfikhore.  * 

Pears  of  tax  changes  arose 
last  March'  with  the-  first 
phase  of  ‘ fhe  offshore  tax 
review,  in  which  the  govern- 
ment said  it  was  not  happy 
with  the  regime.  At  present 
new  fields  are  liable  only  for 
corporation  tax.  The  Trea- 
sury said  it  was  looking  at 
two  options  - the  imposition 
of  a supplementary  corpora- 
tion tax  and  the  re-introduc- 
tion of  the  profits-based 
petroleum  revenue  tax,  abol- 
ished for  new  fields  in  1993. 

Since  then  the  industry 
has  waited  impatiently  for  a 
promised  consultation  docu- 
.ment. : But  this  yeaf  p col- 
lapse in  crude  prices  caused 
the  government  to  re-think 


its  tax  strategy,  according  to 

Treasury  officials. 

It- is  not  clear,  however, 
that- the  industry  will  be 
wholly  reassured  by  the  gov- 
ernment's actions.  Many 
executives  had  hoped  that 
the  government  would  offer 
continuity  over  the  next  few 
years  by  promising  not  to 
tamper  with  the  tax  regime. 
Some  executives  say  North 
Sea  operators  may  remain 
reluctant  to  Invest  in  the 
absence  of  such  clarity. 
v.That  reluctance  is 
reflected  in  drilling  statis- 
tics.^Rebecca  Gregory  at  con- 
sultants Arthur  Andersen 
safe  that,  although  rig  utilis- 
ation rates  are  running  at 
dope  to  100  per  cent,  there 
has-  been  little  exploration 
activity,  with  most  drilling 
confined  to.  development 
wells.  There  have  been  only 
29  exploration  wells  drilled 
this  year,  compared  with  the 
4&.at  this  time  last  year. 
Aj^raisal  drilling  is  also  off 
sharply,  with  only  16  such 
wells  completed  so  far 
against  26  last  year. 

Y'JThe  industry’s  reaction  to 
life  government  tax  initia- 
tive produced  some  interest- 
ing results.  A series  of 
studies  revealed  the  extent 
to  which  the  industry  perme- 
ates the  wider  economy, 
with  400.000  jobs  directly  or 
indirectly  dependent  on  the 
offshore  sector. 

One  study  also  showed 
how  sensitive  the  industry  is 
to  a drop  in  activity.  The 
OCA  estimated  that  a 20  per 
cent  drop  in  sales  to  offshore 
oil  and  gas  producers  “would 
lead  to  more  than  40  per  cent 
of  UK  supplier  companies 
reducing  employment". 

Another  study  suggested 
that  the  UK  offshore  sector 
r.was  not  as  financially  attrac- 
tive as  many  executives  had 
thought.  The  study,  commis- 


COST  REDUCTION  • by  Meg  Chesshyre 


Gone  south:  uncertainty  about  tax  regimes  and  alternative  fuels  has  made  the  UK  industry  wary 


sioned  by  the  oil  industry  as 
part  of  its  campaign  against 
new  taxes,  showed  the  UK 
offshore  sector  to  be  less 
attractive  when  “full-cycle 
project  costs"  were  com- 
pared with  six  other  mature 
oil-producing  countries. 

The  tax  debate  has  not 
been  the  only  dispute 
between  the  Industry  and 
the  authorities.  Companies 
have  also  had  to  contend 
with  a government  review 
on  the  country's  future  fuel 
mix  Natural  gas  producers 
have  been  especially 
incensed  by  government 
plans  to  restrict  new  gas- 
fired  power  plants  in  order 
to  save  jobs  in  the  coal 
industry. 


An  industry-commissioned 
report  by  consultants  Arthur 
D Little  suggested  that  the 
Treasury  could  lose  £1.8bn  in 
North  Sea  taxes  if  the  gov- 
ernment curbs  the  growth  of 
gas-fired  power  stations.  The 
figure  corresponds  to  the 
loss  of  revenues  over  the  life- 
time of  13  field  development 
projects  which  may  not  go 
ahead  if  the  government 
intervenes  on  gas-fired 
power  stations,  according  to 
the  study. 

It  also  suggested  that  the 
overall  economic  impact  will 
be  much  larger  if  the  govern- 
ment implements  restric- 
tions. The  delayed  capital 
investment  in  new  fields  is 
estimated  at  about  £l.7bn. 


The  International  Energy  Agency  (IEA)  publishes  a wide  range  of  annual,  quarterly  and  monthly 
reports  and  detailed  reference  works,  covering: 

• energy  statistics  - oil,  gas,  coal,  electricity,  C02  emissions,  prices  and  taxes 

• energy  balances  - in  OECD  and  non-OECD  countries 

• country  energy  policy -reviews  - a series  ot  periodic  in-depth  reviews  on  the  24 IEA  member 
countries,  as  well  as  non  member  countries 

•studies  - data,  detailed  descriptions  and  analyses  of  key  issues  and  regions. 


For  further  information  on  the  International  Energy  Agency 
and  IEA  Puoncations  uisit  us  at  tne  world  Energy  congress.  Houston  '98. 
stand  1859  or  complete  this  form  and  return  to  tne  address  neioiu: 

0YES.  Please  send  me  more  information  on  IEA  Publications. 

Name 

PositiM/IiHe 

Ccirwny 

Street 

SteteCwmhr  Ptsi&d  coda 

Courtiy 

Tclttftflfc  Fi» 

final 

Baa  ProMtai  to  The  rioroKn  you  punas  wfl  te  r«i  ny  us  &}  uw  be  iced  tc  pi  mftned  nt  & producs  aid  aft  Be  By nser afcBM  asWy  cmpmo  tor  nfeig  u raposa 

IEA  Pulllcallons.  RO.  Box  2722  London,  urn  sbl  OH  • none:  +44  toiin  896  2241 
fax:  +44  (D)  171  BBS  2275  • W0BX11B  WWUI.lBa.0r8 

W2419TD 


with  lost  operating  expendi- 
ture in  a five-year  period 
totalling  £500m.  A slowdown 
In  growth  of  the  UK  gas  mar- 
ket would  reduce  spending 
on  offshore  exploration  by 
£70Qhl 

Whatever  the  outcome  of 
the  remaining  policy  dis- 
pute. the  industry  appears  to 
have  learned  one  painful  les- 
son from  the  confrontation. 
There  is  little  public  or  polit- 
ical sympathy  for,  or  under- 
standing of.  the  industry  and 
its  wider  role  in  the  UK 
economy.  Nor  is  there  much 
appreciation  of  its  potential 
as  a technology-based  export 
earner.  • • 

“The  government  doesn't 
understand  the  contribution 
of  the  industry  in  its  total- 
ity,” says  Syd  Fudge,  head  of 
the  Offshore  Contractors 
Association.  However,  much 
of  the  blame  in  this  regard 
must  be  laid  at  the  indus- 
try's door. 


The  UK  offshore 
industry  pooled 
resources  to 
everybody's 
benefit 

i 

The  C$st  Reduction 
Initiative  jfor  the  New  Era 
(Crine)  sounds  like  the  kind 
of  jargon 'beloved  by  com- 
pany doctors  - for  whom  it 
would  translate  as  job  losses 
- or  spin  doctors  - for  whom 
it  would  translate  as  a cut  in 
funding.  In  fact  it  is  the  UK 
offshore  ou  industry’s  co-op- 
erative cost  reduction  pro- 
gramme sdt  up  in  1992  with 
the  aim  of  achieving  a 30  per 
cent  reduction  in  the  cost  of 
North  Sea  projects. 

The  initiative  reflected  a 
feeling  that  there  was  scope 
to  bring  together  pockets  of 
technology?  and  to  address 
the  issue  that  the  only  inter- 
face between  the  contractor 
and  the  oil  company  was  at 
the  adversarial  bidding 
stage.  As  a result  of 
improved  working  relation- 
ships the  30  per  cent  goal 
has  been  achieved  and  there 
are  hopes  that  Crine  will 
produce  a 40  per  cent  saving. 

The  Crine  Network 
evolved  out.  of  Crine  to  move 
the  initiative  on  to  other 
parts  of  the- business.  It  set  a 
target  of  increasing  the  UK’s 
share  of  the  global  oil  and 
gas  market;  outside  the  UK 
North  Sea,  to  5 per  cent,  or 
£3£bn.  by  2002.  In  1997  the 
figure  roser  to  2.4  per  cent 
from  1 per  cent  in  1996. 

Export  successes  include 
two  significant  overseas  pro- 
jects run  from  the  UK  - 
Kvaemer  Oil  & Gas's  con- 
tract from  the  Sakhalin  I 
Consortium  for  assistance  in 
building  the  $lbn  production 
platform  for  the  Arkutun 
Dagi  field  offshore  Sakhalin 
Island  in  eastern  Russia  and 
Brown  & Roofs  contract  for 
the  provision  of  facilities  for 
the  Amerada  Hess-operated 
South  Arne  development  in 
the  Danish  sector.  The  Wood 
Group,  as  part  of  a consor- 
tium, has  also  been  awarded 
a 16-year  contract,  valued  at 
£800m.  by  the  Venezuelan 
state  oil  company.  PDVSA, 
to  help  boost  oil  production 
from  Lake  Maracaibo. 

“The  North  Sea  can  either 
wait  for  the  oil  price  to  bail 
ft  out  or  deliver  the  Crine 


does 


goals,”  says  Francis  Gugio$: 
managing  director  of  Amer- 
ada Hess  and  current  chair- 
man of  the  initiative.  In  the 
current  low  oil  price  envi- 
ronment, Gugen  sees  two 
initiatives  as  key  to  ensuring 
the  industry's  survival  - 
halving  the  cost  of  offshore 
drilling  and  improving  the 
supply  chain  from  the  con- 
tractor to  the  customer. 

There  is  no  question  that 
the  UK  has  to  become  more 
competitive  if  its  oil  industry 
is  to  survive.  The  goal  is  to 
extract  more  value  for  every 
dollar  spent  on  drilling 
because  well  costs  now  con- 
stitute between  SO  and  60  per 
cent  of  the  spend  on  a proj- 
ect. The  number  of  fields 
that  can  potentially  be  devel- 
oped goes  up  exponentially 
as  the  costs  come  down. 

There  are  three  key  ele- 
ments to  improving  well 
costs.  The  first  is  achieving 
better  definition  of  what  is 
required  SO  that  the  chain 
from  the  geologist  and  geo- 
physicist to  the  driller 
becomes  more  effective.  The 
second  involves  maximising 
the  use  of  existing  technol- 
ogy and  the  third  involves 
technology  which  still  has  to 
be  developed. 

There  is  increasing  aware- 
ness of  the  importance  of  the 
supply  chain.  Most  of  the 
money  operators  spend  is  via 
others.  It  is  important  to  cre- 
ate an  environment  that  per- 
mits a constructive  dialogue 
between  contractors,  suppli- 
ers and  customers. 

Crine  has  used  a Depart- 
ment of  Trade  and  Industry 
survey  on  the  performance 
of  the  supply  chain  and  a 
consultant  is  to  be  appointed 
to  carry  out  specific  research 
into  methodology.  A survey 
was  also  carried  out  at  the 
end  of  last  year  on  waste 
and  best  practice  within  the 
well  construction  and  main- 
tenance areas. 

Work  is  also  under  way  to 
develop  a 10-year  oil  technol- 
ogy ftrnd  of  £20m,  with  £5m 
to  come  from  large  compa- 
nies in  the  North  Sea  ofl  and 
gas  industry  and  £15m  from 
financial  institutions.  From 
this  fund  early  and  later 
stage  Investment  will  be 
made  across  a portfolio  of 
small  to  medium-sued  enter- 
prises fSMEs),  which  are 
developing  "breakthrough” 
technologies. 


- : Tfe  .uncertainty  engen- 
dered by  Hie  government's 
delay  over,  the  fiscal  review 
Is  slowing  progress  in  this 
area  As  ft  is  difficult  fa  per- 
suade people  to  invest  with 
“a  sword  of  Damocles”  hang- 
ing over  them. 

Work  is  also  in  hand  on 
supporting  the  writing  of 
international  standards  for 
the  offkhore  industry  (ISO 
TC67),  with  funding  in  place 
to  ensure  that  UK  interests 
are  well  represented.  The 
aim  is  that  the  standards 
produced  should  be  suitable 
for  the  UK  industry  and  the 
way  it  conducts  its  business 
and  give  UK  manufacturers, 
contractors  and  operators 
equal  access  to  the  world- 
wide industry. 

Another  Crine  achieve-  Ji 
ment  has  been  to  deliver  a f* 
set  of  standard  contracts. 

The  trick  now  is  to  encour- 
age people  to  use  them. 

Also  up  and  running 
under  Crine  is  the  First 
Point  Assessment  pro- 
gramme. which  provides  a 
register  of  suppliers  and  con- 
tractors to  subscribing  oil 
and  gas  companies  (both 
operators  and  contractors) 
which  use  the  database  as 
their  first  stage  of  qualifica- 
tion in  the  selection  of  ten- 
derers for  contracts  subject 
to  European  Commission 
rules.  The  database  has 
around  1,900  supplier  records 
to  which  24  operators  and  13  ,;> 
eon tractors  subscribe.  How- 
ever,  there  is  still  work  to  be  tyf 
done  to  maximise  the  effec-  p 
tiveness  of  the  system.  ^ 

Another  initiative  has 
been  to  set  up  simplified  and  ;t 
lower  cost  insurance. 

The  latest  Crine  success  X-. 
story  is  the  Britannia  gas 
and  condensate  field,  devel- 
oped  by  Chevron  and  Con- 
oco,  where  cost  savings  of  as  - ■■ 

much  as  £400m  were  .T . 
achieved  applying  the  Crine 
culture  of  teamwork  and 
openness.  i. 

Britannia  came  on  stream  j_. 
at  the  beginning  of  August,  j- 

having  achieved  savings  of  j 

20  pgr  cent  from  an  original  T.. 
budget  of  £1 -55b n.  The  same 
Crine  philosophy  has  bene-  ;1" . 
fited  projects  such  as  BG 
Exploration  & Production’s  " 
Armada  field,  which  came  i “ 
on  stream  last  autumn  on  jig  V 
schedule  and  £i07m  less**!"' . 
than  the  original  budget  of  1 
£537m. 


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Oil  in  troubled  water 


Continued  from  Page  1 

way  to  go.’’  There  is  little 
long-term  dialogue  between 
contractors  and  customers. 

Crine  is  now  focusing  on 
bringing  down  drilling  costs 
to  maintain  the  pace  of 
activity  in  the  North  Sea. 

A combination  of  low  oil 
prices  and  uncertainty 
brought  about  by  several 
government  reviews  of  the 
UK  energy  sector,  including 
an  inquiry  into  its  tax 
regime,  has  had  a marked 
impact  on  exploration  activ- 
ity in  the  UK  sector. 

The  number  of  exploration 
wells  being  drilled  is  down 
by  about  half  this  year,  with 
most  companies  concentrat- 
ing on  drilling  development 
wells.  Francis  Gugen,  man- 
aging director  of  Amerada 
Hess  in  the  UK  and  the  cur- 
rent chairman  of  Crine,  says 
halving  the  cost  of  drilling 
and  improving  the  efficiency 
of  the  supply  chain  between 
contractors  and  oil  compa- 
nies are  essential  if  the  UK 
offshore  sector  is  to  survive, 
let  alone  thrive. 

^oHpjciure^. 

Opart, 


i 


“The  North  Sea  can  either 
wait  for  the  oil  price  to  bale 
it  out  or  deliver  the  Crine 
goals,"  he  says. 

Other  Industry  executives, 
such  as  Pierre  Jungels  of 
Enterprise  Oil,  Britain’s  big- 
gest independent  explorer, 
have  recenify  called  for  even 
more  industry-wide  initia- 
tives to  bring  down  the  cost 
base  of  the  North  Sea. 

But  the  UK  government's 
attitude  toward  the  industry 
may  also  prove  crucial  in 
determining' its  future.  The 
prolonged  tax  review  and  a 
separate  inquiry  into  future 
fuel  needs  for  power  genera- 
tion has  produced  a degree 
of  anxiety  and  uncertainty 
distinct  from  the  unease 
over  the  oil  price. 

In  the  course  of  combat- 
ting government  efforts  to 
Increase  offshore  taxes  the 
industry  has  looked  at  itself 
in  a new  light  and  it  has 
proved  to  be  less  flattering 
than  the  commonly  held 
view  of  the  industry. 
Although  the  UK  has  had  a 
reputation  in  the  interna- 
tional oil  industry  for  being 


among  the  most  financially 
attractive  areas  in  which  to 
invest,  new  industry-spon- 
sored studies  suggest  it  is 
less  favourable  when  the 
total  costs  of  doing  business 
in  the  UK  sector  are  taken 
into  account 

Other  studies  have  shown 
that  the  pace  of  new  field 
development  in  the  UK  will 
be  curtailed  sharply  If  the 
government  follows  through 
on  policies  to  save  jobs  in 
the  coal  mines  by  restricting 
the  construction  of  new  gas- 
fired  power  stations. 

The  psychological  damage 
done  to  tire  UK’s  reputation 
as  a result  of  the  govern- 
ment reviews  is  impossible 
to  estimate,  especially  as  the 
country’s  role  in  the  interna- 
tional oil  industry  is  not  con- 
fined to  the  offshore  sector. 
In  recent  years  London  has 
become  the  centre  of  the 
international  oil  industry. 
Although  only  two  of  the  big 
integrated  oil  companies  - 
Royal  Dotch/Shell  and  Brit- 
ish Petroleum  - are  based  in 
Loudon,  many  companies 
have  established  their  head- 
quarters for  Europe,  the  Mid- 
dle East,  Africa  and  the  for- 
mer Soviet  Union  in  the  city. 

But  the  growth  of  London 


as  an  oil  centre  and  the 
health  of  Europe’s  oil  indus- 
try generally  depends  to  a 
large  extent  on  prices.  Many 
analysts  predict  the  slump 
will  probably  continue  until 
the  fourth  quarter  of  the 
year  when  a combination  of 
Opec  output  cuts  and  the 
onset  of  the  northern  winter 
should  erode  surplus  stocks 
and  push  prices  higher. 

But  the  volatility  of  stock 
markets  in  recent  weeks  and 
the  sense  ot  spreading  gloom 
through  emerging  economies 
has  called  into  question 
some  of  the  more  bullish 
forecasts.  Although  all  oil 
companies  believe  prices  will 
improve,  there  is  a clear  J 
sense  of  retrenchment  in  the ' 
sector,  as  executives  seek 
ways  to  survive  what  many 
fear  may  be  a prolonged 
period  of  low  prices. 

In  the  past  some  execu- 
tives observed  that  the  oil 
industry  only  makes  real 
progress  in  tough  times, 
when  technical,  commercial 
and  managerial  innovation 
comes  to  the  fore.  Given  the 
present  economic  outlook, 
they  will  probably  have 
plenty  of  time  to  prove 
whether  such  observations 
are  correct 


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1937 


Financial  Times  Surveys 

FT  Energy 
Review 

Thursday  November  5 

For  further  information  please  contact: 

Janies  Burton  in  London 
Tel:  +44  171  873  4677 
Fax:  -44  171  873  3062 
email;  james.burton«?FT.com 


FINANCIAL  TIMES 

No  FT,  no  comment. 


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Since  Staton’s  bumble 
beginnings  In  1972  as  a 
state  oil  company  founded  - 
to  exploit  and  manage  • 
Norwegian  offshore  oil 
reserves;  the  companyhas 
branched  into  trading.  ‘ 
shipping  and  refining,  and  • 
transformed  into  an  ‘ 
international  operator. 

- Tbe  company. rank?  third-., 
in  net  crude  oil  sales  behind 
Saudia  Arabia's  state  on 
company,  Aramco;  and  . - 
Iran’s  NIOC;  it  isthe  largest 
producer  of  gas  in  the ' - ; 
Appalachian  mountains  c£- 
-the  eastern  US  and.  for  first  , 
time  in  its  history,  capital 
expenditures^  exploration 
outside  Norway  this  year . 

& outstripped  investment. 
v levels  at  home.  . 

Now, -the  company  is  - 
preparing  to  kick  info  Its  . . 
next  phase:  building  up  its 

- global  oil  and  gas  outputto  . 
make  it  a lm  barrels  per  . 
day  (b/d)  company -by.  the 

- year  2005.  As  part  of  its  : 

. latest  strategy,  Statbil  plans 
to  treble  its  current  level  Of 
■ nan-N6rwegian  oil  and  gas  - 
production  to  30QJ3Q0  b/d. 

By  2010,  this  figure  wfll 
peak  at  about  500,000  b/d  of  . 
oil  and  gas. 

“Twenty  five  years  ago 
* we  were  set  up  to  produce 
ofi  in  the  North  Sea,"  says  ' 
Johan  Nic  Void,  Statoil 

executive  vice  president 

^ "hi  1990,  we  saw  production  . 
in  fhe.North  Sea  was  tailing 
off.  If  We.  wanted  to  y. 
maximise  value  creaition  we 
had  togbgfobal.  The  BP/ 

■ statnil  tHHence-gied  up  the 
process." 

The  BP-StatnU  alliance 
' was  Initially  created  in  i590 
with  the  intention  of  - 
co-operatively  exploring 
. and  developing  new  Adds  ; 
In  the  comjtries  of  the 
former  Soviet  Union  and 
offshore  China,  Vietnam- 
and  west  Africa.  Since  then, 

. the  partners  have  grabbed  a 
foothold  in  what  is  believed  ’• 
to  be_  one  of  the  hugest 
* offshore  oil  discoveries  • ‘ 
outside  the  North  Sea>  the  . 
Azeri/Chiraq  field 
development  in  Azerbaijan. 

■ After  an  Initial 
t , investment  of  $lbn  by  the 
*"S  Azerbaijan  Internationa]  . 

‘ Operating  Company  (A10C) 

- and  its  western  partners,  - 
including  Statoil.  the 


SBC*  operator:  Statoffs  affiance  with  BP  in  AzerfaQan  gives  ft  a 
foothold  ki  one  of  the  largest  ofisboreofl  discoveries  • ..  ap 


Norwegian  oil  company  is 
■entitled  to  8£  per  cent  of 
the  field's  75,000  b/d.  Tbe 

field,  which  has  been 
producing  oil  since 
November  1997.  is  expected 
to  reach  300,000  b/d  this 

• year.  At  a total  cost  of 

$10  bn  to  develop  the  4bn  b/d 
reserves  througlrseveral 
phases,  the  project  will  be 
the  most  cost  intensive  of 
Statoil^  international 
activities. 

“Azerbaijan  win  require  a 
lot  of  capital  to  develop  the 
fields,  pipelines  and 
infrastructme  but  the 

- upside  is  that  they  are  very 
large  fields,”  says  Mr  Void. 

Statoil ’s  next  most  capital 
intensive  field  development . 

' overeas  will  be  the  $2.T5tm 
Girassolprqject  offshore 

- Angola.  French  oil  mmpatiy . 
Elf  Aquitaine  operates  - 
block  17,  Which  contains  the 
725m  barrel  field,  along  -• 
with  the  Dalia  and- Rosa 

• discoveries.  Statofl  win  reap 

1^3  per  cent  of  Gtrassol’s  . 
ofi  output  once  the  field  - 
starts  production  in  20QL  . • 
Further  north  in  block  15,  - 
Statoil  holds  a 133  per  emit 
stake  in  Exxon’s  Hungo, 
IQssanje  and  Marimba  oil  ; _ 
discoveries,  whichare 
expected  to  be  developed  ; 
soon.  • •• 

" ‘'  Elsewhere,  the  Norwegian 
company  plans  to  focus  its 
international  and_ 
exploration  efforts  in  . 
Venezuela.  Here  in 
Chevron's  Maracaibo 
prospect,  situated. in  .a  lake, 
th*  company  has  hopes  of 
enhancing  o3  recovery 
tenfold  to  VOODOO  b/d.  - 


Vietnam  will  also  be 
important  but  there  is  a • 
challenge  in  bringing  Che 
. gas  into  the  market  because 
of  the  local  authorities,  Mr 
Vold'says. 

. In  Its  second  tier  of . 
Importance,  the  company 
will  prioritise  the  Atlantic 
Margiirof  the  North  Sea 
and  tbe  Gulf  of  Mexico. 

' .Statofl  also  intends  to 
develop  deepwater  reserves 
offshore  Brazil,  which  was 
only  recently  opened  up  for 
international  competition 
by  the  government 

And  then  there  is  u*iggia. 
The  company  has  made  a 
Bignfflflant  hrpa  trthmngh  in 

the  troubled  country  by 
signing  a co-operation 
agreement  with  Gazprom  In 
the  Tinian  Pechora  Sea.  - 

Meanwhile,  Norway  is.  • 
.heupe  to  its  most  capital  '. 
Intensive  of  projects. . 
Statoil,  together  with 
partaers.  will  spend  '•  <■ 
approximately  NKr36hn  on . 
theAasgard  field  ~ ' 

development  in  the  . 
NorwepanSea  thanks.  In: 
part,  to  a series  of  cost  ' 
overruns  on  the  project 
The  Norwegian  continental 
shelf  also i outstrips  aH  of  its  - 
field  ttevelopments 
combined  in  production  and 
should  continue  to  do  so 
imtil  the  year  2010.  Bui, 
with  so  miich  overseas  - 
investment,  will  • 
mm-Nmwegian  oil . 
production  levels  ever 
challenge  domestic  output? 

"Wen,"  says  Mr  Void, . 
“Never  say  never," 

• - Valeria  Skold 


The  North  Sea:  Norway 


NORWAY  » by  Valeria  SkOld 


Buoyed  by  well 
of  good  fortune 


Deeply  reserved:  Norway  can  look  forward  to  at  least  another  30 
years  of  o3  production  r»y>ifK*wn 


With  another  30 
years  of  reserves 
there  is  little 
concern  about  the 
long-term 

Norway’s  Merit  Arastad. 
energy  minister  of  the 
world’s  second  largest 
exporter  of  oQ  after  Saudla 
Arabia,  recently  boasted  at 
an  international  oil  confer- 
ence that  the  country  is  “rel- 
atively comfortable  with  its 
reserve  base  situation". 

And  with  good  reason.  The 
country  has  50  per  cent  of 
the  remaining  oil  and  gas 
reserves  in  western  Europe, 
having  produced  only  18  per 
cent  of  that  which  it  expects 
to  recover.  Given  its  present 
known  oil  resources,  the 
Norwegian  continental  shelf 
win  be  able  to  produce  at 
todays  levels  for  18  years 
and  tor  a further  10  years 
after  that  when  undiscov- 
ered resources  and  improved 
recovery  techniques  are 
taken  into  account  Gas  pro- 
duction levels  will  last  for 
beyond  that  to  the  year  2060 
at  a rate  of  80bnm*  per  year, 
according  to  tbe  oil  director- 
ate’s best  case  scenario. 

Still,  even  a country  that 
now  boasts  NKri353bn  in  its 
government  petroleum  sur- 
plus fund,  is  having  to  come 
to  grips  with  tbe  reality  of 
an  ail  price  that  has  affected 
all  oil  producing  nations,  hi 
spite  of  the  country’s 
attempts  to  help  other  oil 
producers  prop  up  sagging 
Brent  crude  prices  by  remov- 
ing 100,000  barrels  per  day  of 
its  oil  output  from  the  mar- 
ket since  May,  prices  have 
dropped  to  about  $12  a bar- 
rel, compared  to  $20  in  the 
previous  two  years. 

“The  present  oil  market 
situation  is  characterised  by 
uncertainties  and  unrest," 
said  Ms  Arnstad  in  her  open- 
ing speech  at  13th  Offshore 
Northern  Seas  conference  In 
Stavanger,  Norway,  before 
key  industry  leaders  and  oil 
ministers. 

“No  matter  what  we 
believe  regarding  the  future 
oil  price,  1 think  it  is  obvious 


that  we  should  be  well  pre- 
pared tor  sustained  periods 
of  weak  prices,”  added  Johan 
Nic  Void,  Statoil  executive 
vice  president  in  a later  pre- 
sentation. “Tbe  challenge,  of 
course,  is  to  avoid  low  prices 
having  low  profits  as  a con- 
sequence.” 

Statoil,  the  state-owned  oD 
company  and  largest  pro- 
ducer on  the  Norwegian 
shelf,  has  already  felt  the 
pinch.  It  reported  a 44  per 
cent  decline  in  its  first-half 
profits  compared  to  last  year 
following  a sharp  decline  in 
oil  price.  Similarly,  Saga 
Petroleum  reported  a decline 
in  operating  income  in  tbe 
first  four  months  of  the  year. 
Even  Norsk  Hydro,  Norways 
second  largest  o2  company 
saw  weaker  results  for  oil 
and  gas  slim  back  its  second 
quarter  operating  income. 

Each  of  the  companies  is 
dealing  with  the  eroding 
profit  situation  in  a different 
way.  While  British  Petro- 
leum and  Amoco  recently 
combined  holdings  in  the 
largest  industrial  merger, 
Norway  is  not  following  suit 
Diderik  Schnitler,  Saga 
Petroleum’s  chief  executive, 
says  the  company  is  not  con- 
sidering a merger  with  Stat- 
oil. the  state-owned  oil  com- 
pany. even  though  Statoil 
had  recently  purchased 
Norsk  Hydro’s  shares  to 
become  the  majority  share- 
holder in  Saga. 

“We  will  continue  to  work 
dosedly  with  them  on  a proj- 
ect basis  hut  that  is  not  due 
to  them  being  a share- 
holder,” Mr  Schnitler  says. 

Saga  has  begun  to  deal 
with  the  low  oil  price 
through  a massive  restruct- 
uring plan,  announced  in 
May,  when  Mr  Schnitler  suc- 
ceeded as  president  and 
chief  executive  officer  after 
Asbjora  Larsen’s  19-year 
reign.  As  part-  of  a 
three-point  strategy  of  “ruth- 
less prioritisations”  Mr 
Schnitler  vowed  to  reduce 
the  company's  exploration 
budget  by  NEr300m,  sell  at 
least  NKr500m  of  interests 
on  the  Norwegian  and  UK 
shelves  and  reduce  its  staff 
by  200  by  the  end  of  1999. 


partly  by  a greater  degree  of 
outsourcing. 

Statoil  underwent  what 
was  described  as  its  “last  big 
restructuring  before  the  year 
2000"  in  1994  and  has  come 
to  rely  on  technology  rather 
than  cutting  its  staff  or  bud- 
get. according  to  Stig  Berg- 
setb,  executive  vice  presi- 
dent The  company  is  in  tbe 
process  of  redesigning  its 
administrative  procedures  so 
as  to  implement  a single 
computer  system  across  tbe 
company.  Strategically,  it  is 
focusing  more  on  core  activi- 
ties and  is  in  middle  of  pro- 
gramme called  Score  (Stat- 
oil-core)  which  aims  to 
improve  hydrocarbon  recov- 
ery through  better  drilling 
accuracy. 

Technological  advances  in 
oil  recovery  techniques 
should  be  able  to  extract  a 
total  of  53bn  barrels  of  addi- 
tional oil  from  the  Norwe- 
gian shelf  - half  of  the  crude 
sold  by  Norway  since  1971. 
according  to  the  latest  fig- 
ures from  Norway’s  oil  direc- 
torate. 

But  the  downside  of  the 
rush  toward  cost-effective 
field  development  solutions 
in  the  past  years,  including 
floating  production  units, 
has  been  some  setbacks  and 
cost  overruns.  Project  costs 
have  also  increased  because 
of  pressure  for  spare  capac- 
ity in  Norway,  which  has 
only  about  2 per  cent  unem- 
ployment 

The  result  has  been  deba- 
cles such  as  Esso’s  Balder 
field  in  the  North  Sea,  which 
is  delayed  to  1999  and  expec- 
ted to  come  in  NKr3bn  over 
budget,  and  StatoiJ’s  Aas- 
gard  project  in  the  Norwe- 
gian Sea  which  will  cost 
NKr33.6bn  rather  than  its 
originally  anticipated  cost  of 
NKr27bn. 

Nevertheless,  oil  compa- 
nies have  sought  approval 
for  investments  totalling  an 
unprecedented  NKr68bn  on 
the  Norwegian  shelf  this 
year.  Faced  with  an  overex- 
panding economy.  Ms  Am- 
stad  was  pressed  in  March  to 
postpone  investments  by  one 
year  in  12  offshore  oil  field 
projects,  including  Saga 


Petroleum's  Snorre  Q devel- 
opment in  the  North  Sea. 
More  recently,  Ms  Arnstad 
announced  that  the  govern- 
ment was  setting  up  a spe- 
cial committee  to  explore  the 
reasons  behind  the  signifi- 
cant cost  overruns  in  Norwe- 
gian projects  in  spite  of  cost- 
cutting initiatives  by  the 
industry. 

Those  initiatives  were 
embodied  In  Norsok.  a forum 
born  in  1992  bringing  pro- 
ducers and  suppliers 
together  to  explore  ways  of 
improving  efficiency  in  the 
Norwegian  oil  industry.  Nor- 
sok will  be  the  vehicle  for 
the  committee  exploring  cost 
overruns,  a fact  which  will 
not  be  universally  well 


received.  Whilst  Norsok  pro- 
duced efficiencies  it  also  cre- 
ated ill  will 

Although  Norsok  has  been 
able  to  substantially  reduce 
costs  in  the  industry,  says 
Gunnar  Beige,  director  gen- 
eral for  Norway's  oil  direc- 
torate, spokesmen  from  Nor- 
wegian suppliers  have 
pointed  out  a backlash  with 
respect  to  the  supplier's 
motivation  for  long-term 
investments  and  participa- 
tion in  new  technology. 

“Perhaps  it  is  time  to  eval- 
uate whether  the  industry 
has  established  the  best 
models  for  successful  alli- 
ances based  on  clearly 
defined  and  mutually  agreed 
objectives.”  he  says. 


PECOMMISSIOIUMG  • by  Meg  Leitch 


(bled  water  why  old 


'.  - . 


•wi‘ 

, aw 


i.irTT—  - r:  • 
* 11  ~ ' H.-'St’j 


rigs  are  not 
old  dogs 


•;  <*fr~ 


'■i' 


When  their  life 
cannot  be 
extended,  old 
platforms  can 
learn  new  tricks 

The  Brent  Spar  debacle 
changed  the  course  of  plat- 
form abandonment  history. 
Shell’s  dramatic  U-turn  in 
1995  on  dumping  the  redun- 
dant storage  buoy  in  a deep 
Atlantic  site  and  the  deci- 
sion in  July  this  year  by 
European  environment  min- 
isters to  ban  the  disposal  at 
sea'  of  steel  oil  and  gas  plat- 
forms have  created  a new 
tell  gamo  for  the  offshore  ofi 
Industry. 

Yet,  even  before  these 
events,  offshore  operators 
were  pursuing  ways  of 
extending  field  life  and 
delaying  for  as  long  as  possi- 
ble the  expensive  process  of 
decommissioning. 

In  the  UK.  for  example. 
!.thfe  North  West  Hutton, 
.Heather,  Maureen  and  Auk 
fields,  operated  by  Amoco. 
DNO,  Phillips  Petroleum  and 
Shell  respectively,  are  still 
- producing  beyond  previously 
‘ expected  depletion  dales  as  a 
..remit of  ever  improving  res- 
Aiftohr  understanding  and 
management  Shell’s  Brent 
redevelopment  and  Phillips' 
j^centiy  completed  Ekofisk 
■ . ^ project  in  Norway-  will 
substantially  extend  the 
■■■  of  both  fields.  .. 

to  July's  meeting  in 
of  the  Oslo  Paris 
ion  (Ospar),  which 
the  marine  environ- 
ef  the  North  Sea  and 
East  Atlantic,  regula- 

gutdelines  called  for 
in  less  than  75 
. of  water  and  weigh-, 
fetes  than  4.000  tomes  in 

tawhwBug  the  deck  and' 
to  be  totally, 
.^gaorred.  •"  . , 
ViHutiiaamore  wfcfchtook 
industry  by  surprise,  tbe- 
yspar;  ministers  agreed  to 


ban.  with  effect  from  Febru- 
ary 9, 1999,  the  dumping  and 
toppling  of  all  steel  plat- 
forms in  the  North  Sea, 
although  the  bottom  sections 
of  existing  installations 
weighing  more  than  10,000 
tonnes  may  be  allowed  to 
remain  on  the  seabed  in 
exceptional  circumstances. 

Although  concrete  struc- 
tures are  likely  to  be  allowed 
to  remain  in  situ,  all  new 
steel  structures  placed  on 
the  seabed  must  be  removed 
entirely.  The  decision  is 
likely  to  compel  operators  to 
seek  ever  ingenious  ways  to 
prolong  platform  life. 

' Over  the  next  25  years  tbe 
international  oil  and  gas 
industry  faces  the  challenge 
of  decommissioning  &500  off- 
shore installations,  varying 
in  size  from-  small,  single 
well  structures  in  the  Gulf  of 
Mexico  to  large  and  heavy 
platforms  in  the  deeper 
waters  of  the  North  Sea. 

Industry  calculations  esti- 
mate that  to  decommission 

all  the  installations  world- 
wide will  cost  more  than 
$30bn.  Of  this,  it  is  estimated 
that  some  5950  per  cent  will 
be  spent  in  the  Neath  Sea 
and  north-  east  Atlantic, 
where  only  5 per  cent  of  the 
total,  number  of  installations 
are  located. 

In  the  North  Sea  and 
north-east  Atlantic  there  are 
more  than  am  steel  plat- 
forms in  less  than  75  metres 
of  water,  about  1 50  steel 
installations  in  more  >lwn  75 
metres  of  water  and  23  con- 
crete gravity  base  structures 
in  deep  water.  In  tbe  UK.  it 
is  estimated  that  a minimum 
of  $2.4bn  will  be  spent 
decommissioning  some  50 
installations  over  tbe  next  10 
years,  while  in  Norway  the 
cost  is  put  at  around  $7^bn. 
_By  tbe  end  of  1997,  around 
27  offshore  Installations  had 
been  decommissioned  in  the 
North  Sea.  Of  these.  15  were 
steel  and.  with  the  exception 
of- Esso's  Odin  platform  in 


m . ..... — a* 

- « 


,‘  t > v-* 


I 

— a 

. 503*1- V* 


A 


Shafi  shocked:  the  unhappy  saga  of  Brent  Spar  was  a tuning  point  in  platform  abendoranent 


Norway,  they  were  small, 
lightweight  structures  in  the 
UK  southern  sector. 

The  remaining  installa- 
tions were  floating  produc- 
tion systems,  storage  units 
and  subsea  installations.  All 
have  been  re-used  or 
removed  to  shore  for  recycl- 
ing and  disposal. 

The  timing  of  the  cessa- 
tion of  production  depends 
on  production  rates,  current 
and  future  oil  and  gas  prices, 
operating  costs,  fiscal  policy 
and  the  regulatory  regime. 
Operators  are  continuously 
seeking  for  ways  to  prolong 
the  production  life  of  fields 
byr  adopting  new  technology', 
new  operating  methods  and 
alternative  uses  for  installa- 
tions. 

One  emerging  trend  has 
seen  operators  selling  ageing 
infrastructure  to  smaller, 
perhaps  independent  compa- 
nies. for  whom  the  remain- 
ing production  from  a field 
offers  a more  useful  income 
stream,  or  bringing  in  con- 
tractors to  take  over  the 
management  of  the  asset  In 
1996  Talisman,  bought  BP’s 
interests  in  the  Beatrice. 
Buchan  and  Clyde  fields  and 
Chevron  complied  the  sale 
to  Oryx  Energy  of  its  inter- 
ests in  Niraan.  Hutton,  Lyeli 
and  Murchison. 


Talisman  and  Oryx  backed 
their  judgement  that  there 
were  a number  of  invest- 
ment opportunities  around 
the  facilities  that  would 
extend  field  life  and  create 
value.  Last  year  Unocal  sold 
the  Heather  field  to  DNO. 

US  contractor  Halliburton 
Energy  Development  had 

been  in  talks  with  Amoco  to 
acquire  North  West  Hutton 
and  become  operator  of  the 
15- year-old  field.  However, 
discussions  were  halted  last 
mouth  with  the  declining  oil 
price  cited  as  a factor  in  tbe 
failure  of  tbe  two  sides  to 
reach  agreement 

Amoco  recently  carried 
out  3D  seismic  studies  over 
North  West  Hutton  and  is 
waiting  for  the  results  to  be 
assessed  before  determining 
plans  for  the  future  of  the 
field.  Studies  on  decommis- 
sioning are  being  carried  out 
in  parallel.  Halliburton  said 
it  had  the  expertise  to 
extend  production  from  the 
Odd  until  at  least  2003. 

Much  of  the  focus  of  new 
technology  is  on  the 
increased  application  of  sub- 
sea production  systems  and 
floating  production  systems, 
such  as  tension  leg  plat- 
farms  (TLFs)  or  ship-based 
units.  Developments  in  seis- 
mic activity  are  also  helping 


to  achieve  more  accurate 
reservoir  definition. 

If  the  life  of  a platform 
cannot  be  extended  there  are 
a number  of  options  for 
removal  and  disposal.  The 
best  for  each  installation 
depends  on  factors  such  as 
the  type  of  construction, 
size,  distance  from  shore, 
weather  conditions  and  the 
complexity  of  the  removal 
operation,  including  the 


safety  considerations  of  the 
workers. 

In  most  cases  topsides  will 
be  taken  to  shore  for  recycl- 
ing. It  is  the  substructure, 
which  normally  contains  no 
oil  or  other  residues,  where 
the  choice  is  critical.  One  of 
the  most  successful  exam- 
ples of  recycling  redundant 
installations  has  seen  their 
use  as  artificial  reefs. 
Research  is  under  way 


worldwide  into  the  effects  of 
artificial  reefs,  including  in 
the  Moray  Firth  in  Scotland, 
partly  funded  by  the  Euro- 
pean Union. 

The  most  extensive  and 
successful  rigs  to  reefs  pro- 
gramme is  in  the  Gulf  of 
Mexico,  where  some  90  plat- 
forms (about  10  per  cent  of 
those  decommissioned)  have 
already  been  placed  as  reefs 
in  permanent  disposal  sites, 
ranging  in  water  depth  from 
30  metres  to  100  metres  and 
located  50-200  miles  offshore. 

Although  the  industry  has 
considerable  experience 
worldwide  of  removing 
smaller  steel  structures, 
there  are  particularly  diffi- 
cult challenges  in  removing 
large  steel  and  concrete 
installations  in  the  deep 
waters  of  the  North  Sea  and 
north  east  Atlantic. 

Phillips,  the  frontrunner 
in  terms  of  its  experience  of 
decnmmisslnning,  is  evaluat- 
ing options  for  14  redundant 
platforms  in  tbe  Ekofisk 
field,  involving  the  removal 
of  around  120,000  tonnes  of 
steel.  A cessation  plan  for 
the  platforms  is  expected  to 
be  submitted  to  the  Norwe- 
gian energy  ministry  in  the 
middle  of  next  year,  with 
approval  from  the  authori- 
ties possibly  emerging  in 
2001.  Under  Norway's  tax 
regime,  the  state  will  fund 
about  two-thirds  of  tbe  cost 
of  tbe  chosen  solution. 

Phillips  is  looking  at  possi- 
ble re-use  options  for  the 
platforms,  including  the  arti- 


ficial reef  concept.  It  plans  to 
award  a contract  this  month 
for  a market  survey  which 
will  determine  the  value  of 
the  redundant  structures. 

In  the  UK,  Phillips  is  seek- 
ing a buyer  for  the  Maureen 
steel  gravity-based  installa- 
tion. Provisional  plans  sug- 
gest tbe  structure  will  be 
removed  in  2000.  Zt  will  be 
deballasted  and  towed  to  a 
deepwater  location  after 
which  Phillips  will  decide  if 
the  structure  will  be  rede- 
ployed or  abandoned. 

Agip  is  also  looking  for  a 
buyer  for  its  UK  Balmoral 
field  floating  production  sys- 
tem, bids  for  which  were 
recently  submitted  to  ship- 
broker  E A Gibson.  However, 
the  operator  has  asked  con- 
tractors to  evaluate  options 
for  continuing  production 
from  the  field,  which  Is 
expected  to  remain  viable  for 
at  least  another  three  years. 
Provided  it  can  find  a buyer 
for  the  Balmoral  unit.  Agip 
plans  to  lease  a semi -sub- 
mersible for  the  remaining 
life  of  the  field. 

As  markets  such  as  the 
North  Sea  begin  to  mature, 
the  issue  of  decommission- 
ing becomes  increasingly 
important.  Against  the  back- 
ground of  oil  price  volatility 
and  continuing  environmen- 
tal pressures,  the  offshore 
industry  is  likely  to  pursue 
ever  more  active  reservoir 
and  platform  management  in 
the  new  millennium. 

Meg  Leitch  is  editor  of  the  FT 
North  Sen  Letter 


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The  oil  industry  faces  unprecedented  change  as  consumers,  and  governments, 
demand  cleaner  fuels.  Its  reaction,  says  Robert  Corzine,  will  determine  its  future 


The  message  is  in  the  mix 


Two  things  the  International 
oil  industry  can  depend  on 
are  change  and  uncertainty. 
Over  the  next  few  years 
those  two  elements  are 
likely  to  figure  even  more 
prominently  than  they  have 
in  the  past 

The  challenge  will  be  com- 
pounded by  the  widening 
range  of  issues  facing  the 
industry,  from  the  often 
unpredictable  evolution  of 
technology  to  rapidly  chang- 
ing energy  markets,  which 
are  increasingly  being  influ- 
enced by  equally  unpredict- 
able political  factors. 

Social  pressures  are  also 
bearing  down  on  the  indus- 
try, which  is  being  forced 
into  roles  which  were  incon- 
ceivable Just  a few  years  ago. 

Uncertainties  abound. 
These  include  conflicting 
theories  about  resource 
availability  and  the  prospect 
of  another  oil  crisis  in  com- 
ing years. 

One  area  where  many  of 
these  factors  come  together 


is  In  the  debate  over  future 
fuel  standards  and  types. 

The  broad  trends  in  the 
industry  are  relatively  dear. 
Natural  gas,  for  example.  Is 
making  deep  inroads  into 
traditional  oil  markets,  espe- 
cially for  power  generation. 
Although  very  low  oil  prices 
over  a prolonged  period 
could  slow  the  substitution 
of  gas  for  fuel  oil  in  some 
countries,  environmental 
factors  alone  suggest  that 
gas  wDl  continue  to  be  the 
fuel  of  choice  for  greenfield 
power  generation  projects  in 
most  parts  of  the  world.  The 
need  for  countries  to  meet 
new  targets  to  reduce  emis- 
sions of  greenhouse  gases 
should  encourage  even 
greater  use  of  gas  to  gener- 
ate electricity. 

Another  clear  trend  is  the 
shift  towards  the  “whiter'’, 
or  “ cleaner”,  parts  of  the  oil 
barrel.  Figures  from  the 
International  Energy 
Agency,  the  Paris-based 
group  that  monitors  world 


energy  markets  on  behalf  of 
tbe  Industrialised  countries, 
Illustrate  the  trend.  In  1982 
US  demand  for  residual  fuel 
oil  - the  “blackest"  part  of 
the  barrel  - was  running  at 
i.72m  barrels  a day.  By  last 
year  it  had  fallen  by  more 
than  half,  to  just  800,000  b/cL 

The  IEA  statistics  also 
highlight  the  steady  demand 
in  all  regions  for  transport 
fuels.  Gasoline  demand  in 
the  US  - the  biggest  oil  mar- 
ket - rose  from  6.54m  b/d  to 
8.01m  b/d  between  1982  and 
1997. 

But  even  though  such 
trends  are  clear,  wbat  is  less 
discemable  is  the  specific 
type  of  fuels  that  will  be 
demanded  by  consumers 
and,  perhaps  more  impor- 
tantly. by  governments,  in 
the  years  ahead. 

Over  the  past  decade  or  so 
there  has  been  a steady 
trend  towards  cleaner  fuels, 
with  refiners  having  to  pro- 
gressively reduce  the  quan- 
tity of  pollutants,  such  as 


sulphur  or  aromatics,  in  gas- 
oline and  diesel.  But  as  Jer- 
emy Hudson,  an  oil  analyst 
with  brokers  Salomon  Smith 
Barney  in  London  notes,  the 
fuel  standards  being  consid- 
ered for  implementation  in 
the  US  and  Europe  around 
2005  are  such  “that  to  maVA 
any  further  movement  from 
those  quality  levels  may  be 
technically  very  difficult”. 

The  problem  Is  com- 
pounded by  the  emergence 
of  new  energy  technologies 
that  could  quickly  overtake 
conventional  fuels. 

Beraie  Bulkin,  director  of 
environmental  affairs  at 
British  Petroleum,  believes 
one  big  challenge  will  be  to 
move  the  debate  away  from 
“tinkering"  with  detailed 
specifications,  to  a point 
where  people  focus  on  “what 
new  technologies  are  coming 
forward  and  what  will  be 
required  to  make  them  more 
efficient”. 

The  advent  of  vehicles 
powered  by  fuel  cells  Illus- 


trates the  complexify  of  the 
Issue  facing  the  Industry,  AH 
the  leading  International 
vehicle  manufacturers  are 
working  on  fuel  cells,  with 
some,  such  as  Mercedes- 
Benz,  working  toward  an 
ambitious  timetable  of  hav- 
ing production  vehicles 
available  as  early  as  2005. 

The  challenge  of  transla- 
ting fuel  cell  technology  into 
commercial,  mass  market 
vehicles  is  considerable.  But 
the  pace  of  technological 
change  is  such  that  oil  com- 
panies can  no  longer  dismiss 
such  targets  as  merely  fanci- 
ful thinWng  on  the  part  of 
the  car  industry.  “Fuel  cells 
are  a big  question  mark,” 
flays  Mr  Bulkin.  “But  if  they 
happen  it  makes  investment 
in  other  fuels  look  sick.” 

The  problem  is  that  there 
is  no  common  standard  for 
fuel  cells.  Nor  is  there  agree- 
ment on  the  fuel  that  would 
be  best  to  power  them.  Mr 
Hudson  believes  oil  compa- 
nies are  likely  to  pair  up 


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Fueffing  the  ctetwf:  car  manufactory!  are  exploring  aitrnatiyji  to  ofl 


with  motor  manufacturers 
as  the  technology  matures  to 
push  specific  technology/fuel 
variants.  But  as  Mr  Bulkin 
notes,  that  raises  the  spectre 
of  “somebody  winding  up 
with  Betamax  fuel". 

But  fuel  cells  are  not  the 
only  uncertainty.  Technol- 
ogy to  convert  gas  to  liquid 
fuels  offers  the  prospect  of 
exceptionally  clean  and  vir- 
tually sulphur  free  diesel 
and  other  middle  distillates, 


such  as  jet  fuel.  Once  again, 
different  companies  are  pur- 
suing different  technologies. 
But  optimum  combinations 
of  technologies  are  likely  to 
emerge  in  tbe  next  few  years 
as  they  join  forces  to  estab- 
lish commercial  projects  in 
areas  with  large  volumes  of 
low  cost  gas. 

The  cost  of  building  such 
plants  is  coming  down  rap- 
idly to  the  point  where  they 
would  be  competitive  with 


new  refineries.  But  the  Mg 
question  is  whether  consum- 
ers and  governments  will  be 
willing  to  pay  the  premium 
that  companies  say  they 
require  to  make  large-scale 
investments  in  gas-to-Uquids 
viable? 

As  Mr  Bulkin  observes:  "It 
win  be  politics  and  technol- 
ogy that  dictate  where  we 
will  be  In  terms  of  fuel  stan? 
dards  and  types  In  the  next 
decade." 


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The  Middle  East 
will  not  take  the 
world  back  to 
the  1970s,  says 
MQceCharnley-Fi8her 


Warnings  of  a 1970s  style 
oil  simply  crisis  reflect 
deep-seated  fears  about  the 
abffify  of  the  Middle  East  to 
control  oil  supply  and 
price. 

But  the  bargaining 
position  of  the  Middle  East 
has  changed  significantly 
over  the  past  two  decades 
with  the  biggest  single 
factor  in  that  change  being 
the  dramatically  increased 
ability  of  the  world  to 
substitute  for  tbe  region’s 
oil  should  the  Middle  East 
try  to  raise  prices. 
Alternatives  could  not  be 
sourced  over  night  but  they 
could  be  found. 

On  the  supply  side  gas  . 
reserves  and  the  - 
infrastructure  to  transport 
them  are  now  available, 
across  Europe,  especially 
from  the  countries 
emerging  from  the  former 
Soviet  Union. 

The  Asia  Pacific  coast  Is 
also  hunting  regional  and 
national  gas  transportation 
infrastructure  (for  example, 
planned  pipelines  from  the 
gas  region  around  Sakhalin 
island  and  the  high 
pressure  distribution 
network  In  South  Korea) 
and  the  move  away  from 
long-term  LNG  contracts  in 
the  region  may  be  partly 
explained  by  this  emerging 
opportunity. 

The  proximity  of  China 
to  the  reserves  In  Siberia 
has  not  gone  unnoticed. 
Lastly,  the  ability  of  the 
world  to  quickly  develop 
commercial  scale 
conversion  plants  should 
not  be  underestimated. 

On  the  demand  side,  the 
turbine  technology  now 
employed  to  generate 
power  has  much  greater 
flexibility  in  terms  of 
choice  of  fuel  mid  the  scale 
required  to  be  commercial. 
Witness  the  rapid' growth  of 
small  Independent  power 
producers  (IPPs)  around 
the  world.  And  alternative 
fuel  options  are  also  ; 

becoming  available  in  the 
transportation  arena. 

Other  factors  - new 
entrants  to  the  energy  1 

supply  market,  the  l 

strength  of  the  buyer  1 

community  (assisted  in  1 

part  by  global  1 

communications),  the  3 

relative  weakness  of  the  I 

supplier  side  of  the  e 

equation  and  the  highly  f 

competitive  nature  of  the  0 

industry  - all  serve  to  e 

suggest  that  oil  prices  will  d 

be  market,  rather  than 
politically,  driven.  The  b 

inability  of  Opec  nations  to  9 

co-operate  until  oil  prices  si 

fell  to  recent  levels  ir 

confirms  this  assertion.  c 

This  presents  a much  h 

changed  scenario  to  that  of  b 

the  1970s,  the  only  constant  pi 

is  the  importance  of  oil  to  & 

the  Middle  East  si 

Oil  revenue  has  to 
sustain  and  build  the  m 

infrastructure,  provide  A 


t security  and  meet  the 
demands  of  the  people  of 
' the  Middle  East  But  it  is 
clear  that  the  Middle  East 
is  struggling^  maintain 
the  status  quo  in  terms  of 
public  expenditure, 
national  security  and 
domestic  stability  under 
current  oil  prices. 

® ■ Nevertheless,  a 
politically  driven 
short-term  price  Increase 
by  the  Middle  East  would 
inevitably  speed  up  the 
* pace  of  fuel  substitution, 
particularly  by  gas.  This 
would  have  a detrimental 
medium-term  impact  on  the 
£ Middle  East  market  share 
1 erf  energy  supply. 

Moreover,  the  picture  : 
regarding  global  production 
levels  is  not  as  bleak  as  the 
crisis-mongers  make  out  A 
sHghtlymore  optimistic 
^ view  of  reserves  and, 
largely  due  to'  the  current 
global  economic  slow-down, 
a more  pessimistic  view  of 
demand  suggests  a later 
• peak  in  oil  production  than 
is  predicted  hy  those  fearful 
of  a supply  crisis. 

It  is  unlikely  that  we  will 
see  another  oil  crisis  of  the 
type  seen  in  the  1970s. 
Rather,  the  evidence 
supports  tbe  US 
' Department  of  Energy's 
Annua]  Energy  Outlook 
1998,  which  concluded  that 
oil  prices  wQl  stay  at  less 

- than  S20/barrei  for  the  next 
decade  and  that  supplies 
will  be  maintained  beyond 
2020, 

However,  complacency 
wo  old  he  dangerous. 
Warnings  of  Indonesia  style 
anarchy  have  featured  In 
the  newspaper  headlines  in 
some  Middle  East 
countries.  The  loss  of 
production  from  any  one  of 
them  would  have  severe 
repercussions. 

Warnings  of  an  imminent 
crisis  are  exaggerated  but 
oil  is  likely  to  run  short 
within  the  lifetime  of  our 
children.  Governments 
must  increase  regulatory 
pressure  to  preserve  what 
remains.  Unfortunately,  a 
global  environmental  crisis 

- such  as  the  movement  of 
the  Gulf  Stream 
southwards  - seems  most 
likely  to  force  concerted 
action. 

In  order  to  maintain 
market  driven,  versus 
politically  driven,  oil 
pricing,  it  is  essential  that 
long-term  investment  in 
non-oil  fuels  continues. 
Short-term  economic 
pressures  to  delay 
expenditure  until  the 
future  Is  more  certain  and 
over-supply,  across  the 
energy  spectrum,  is  met  by 
demand  must  be  ignored 
And,  alongside.  * 
investment  in  alternative 
sources,  the  Middle  East 
should  be  encouraged  to 
increase  oil  production 
capacity  since  this  should 
begin  to  redress  imbalance 
between  reserves  and 
production  and  provide 
greater  long-term  energy 
supply  stability. 

Mike  Chamley-Fisher  is 
energy  consultant  at  Ernst 
& Young 


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hey  wouldn ’t  have  survived  their  migration 
if  they  couldn  t have  stopped  at  their  feeding  grounds 


urr  ..  . 


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they  couldn ’t  have  stopped  if  construction 


on  a nearby  power  plant  had  scared  them  away, 


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warn 


the  construction  wouldn ’t  have  waited 


if  not  for  the  engineers  of  ABB 


SSH 


sit  the  ABB  World  Wide  Web  site  at  http://vwmabb.com 


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In  the  eye  of  the  storm 


The  world's 
energy  producers 
are  at  the  centre 
of  the  debate  on 
climate  change 

The  record-breaking  temper- 
atures of  the  first  six  months 
of  1998  were  greeted,  in  some 
quarters,  as  evidence  of  the 
need  to  curt)  carbon  dioxide 
emissions  from  fossil  fuels. 

By  trapping  heat  in  the 
atmosphere,  it  is  feared  that 
these  'greenhouse1  gases 
could  lead  to  a spate  of 
disasters  across  the  world, 
including  floods,  storm  dam- 
age and  crop  failure. 

But  there  are  few  certain- 
ties when  it  comes  to  global 
warming.  Its  causes  and  con- 
sequences are  hotly  debated; 
so  too,  are  the  best  ways  of 
tackling  it 

The  world’s  energy  pro- 
ducers are,  inevitably,  at  the 
centre  of  this  debate.  But  the 
full  impact  of  the  global 
warming  issue  on  their  busi- 
nesses may  take  years,  or 
even  decades,  to  emerge. 


Much  will  depend  on  the 
progress  of  international 
policymakers  in  agreeing 
legally  binding  cuts  in  green- 
house gas  emissions.  Then 
there  1b  the  matter  of 
whether,  and  how,  govern- 
ments meet  their  obligations 
and  the  potential  for  replac- 
ing fossil  fuels  with  renew- 
able sources. 

The  pace  of  introduction  of 
the  controls  on  greenhouse 
gas  controls  win  differ  mark- 
edly around  the  world.  At 
the  Kyoto  summit  last  year, 
the  European  Union,  the  US 
and  Japan  agreed  emission 
reduction  targets  from  1990 
levels  of  8 per  cent,  7 per 
cent  and  8 per  cent  respec- 
tively between  2008  and  2012. 
For  others,  the  targets  allow 
for  substantial  increases  in 
wwiisrinns  from  1990  levels. 

Differing  approaches  will 
be  taken  by  the  main  indus- 
trialised countries  to  meet- 
ing their  targets.  The  US  is 
placing  heavy  reliance  on 
international  iwHiaiifine  trad- 
ing. This  idea  - which  has 
not  yet  been  agreed  in  detail 
- Is  that  those  industrialised 


countries  that  reduce  emis- 
sions beyond  their  agreed 
target  can  sell  their  excess 
emissions  credits  to  others. 

Europe  is  likely  to  favour 
regulation  and  taxation.  Sev- 
eral countries,  including 
Denmark,  Sweden  and  the 
Netherlands,  have  already 
adopted  carbon  and  energy 
taxes,  some  of  which  give 
exemptions  to  encourage 
renewable  energy  sources. 

Japan  is  likely  to  build  on 
voluntary  agreements  with 
industry  to  enhance  Its 
energy  efficiency,  which  Is 
already  well  in  advance  of 
either  the  US  or  Europe. 

Within  the  energy  sector, 
the  implications  of  climate 
policies  vary  considerably. 
Natural  gas  producers  may 
benefit  from  attempts  to 
reduce  carbon  dioxide  emis- 
sions. "In  the  short-term,  cli- 
mate policies  favour  a fuel 
shift  a ft-nm  coal 

to  oil  to  natural  gas,1*  accord- 
ing to  a recent  study  by  the 
Paris-based  International 
Energy  Agency.  The  dis- 
placement of  coal-fired 
power  plants  with  efficient 


gas-fuelled  turbines  Is  a rela- 
tively quick,  cheap  way  to 
reduce  emissions. 

The  biggest  loser  is  expec- 
ted to  to  be  the  coal  industry 
which  has  a particularly  bad 
pollution  record.  In  some 
places,  the  reliance  an  coal 
has  already  been  reduced.  In 
Germany,  for  example,  the 
forced  shutdown  of  ineffi- 
cient, coal-based  Industries 
and  power  plants  In  the  east- 
ern states,  together  with 
energy  policy  reforms,  cut 
emissions  by  7.6  per  cent 
between  1990  and  1996. 

Oil  companies  are  also 
being  targeted  in  the  effort 
to  reduce  emissions.  Green- 
peace, the  environmental 
group,  is  attempting  to 
Impede  the  exploration  work 
of  ofl  companies  in  frontier 
areas,  ft  argues  that  opening 
up  new  reserves  will  prolong 
reliance  on  hydrocarbons 
and  delay  a shift  towards 
renewable  energy. 

Some  oi  the  huge  oil  com- 
panies, such  as  BP  and 
Royal  Dutch/Shell,  have 
sharply  increased  their 
Investment  in  renewable 


energy.  But  the  commitment 
to  renewable  sources  does 
not  obviate  the  necessity  of 
continued  exploitation  of  oil 
reserves,  they  say.  Most,  if 
not  all,  of  the  world's  oil  and 
gas  reserves  will  be  needed 
to  meet  energy  needs  while 
large  scale  renewable  energy 
sources  are  developed. 

At  the  same  time  as  devel- 
oping alternatives,  energy 
producers  are  attempting  to 
reduce  their  impact  on  the 
environment.  Carbon  seques- 
tration - in  which  the  gas  is 
captured  and  stored  in 
underground  or  undersea 
saline  formations  - is  an 
being  pursued 

For  large  consumers  of  fos- 
sil fuels,  climate  change  also 
has  important  implications. 
They  are  being  exhorted  to 
improve  their  energy  effi- 
ciency as  the  most  important 
way  of  reducing  emissions. 

Voluntary  agreements  are 
likely  to  play  an  important 
rote  In  the  Industrial  sector. 
The  European  Automobile 
Manufacturers'  Association 
has  agreed  to  cut  carbon 
dioxide  emissions  on  new 


Coal-fired:  protesters  are  pressurising  governments  to  abandon  fossil  fuels 


cars  by  25  per  cent  by  2008, 
compared  with  1995.  Prog- 
ress will  be  reviewed  in  2003 
with  a view  to  lowering 
emissions  still  further. 

Despite  the  ambitious  tar- 
gets being  pursued  by  some 
countries,  there  is  little  pre- 
tence that  arresting  carbon 
dioxide  emissions  will  be 
easy.  Energy  from  fossil 
fuels  is  abundant,  prices  are 
low  and  consumers  are 
becoming  more,  not  less, 
dependent  on  cars  and  other 


energy-intensive  devices.  In 
many  cases,  the  improve- 
ments in  energy  efficiency 
will  be  largely  tempered  by- 
increasing  demand. 

In  the  US.  which  is  by  far 
the  largest  emitter  of  green- 
house gases  in  the  world, 
there  is  a strong  vein  of 
scepticism  about  the  scien- 
tific evidence  concerning  cli- 
mate change,  coupled  with 
fears  that  the  Kyoto  commit- 
ments could  do  immense 
damage  to  the  country's  eco- 


nomic well-being.  The  result 
is  an  active  lobbying  cam- 
paign to  persuade  the  Senate 
to  block  ratification  of  the 
climate  change  treaty. 

Meanwhile,  the  measures 
taken  by  industrialised  coun- 
tries will  increasingly  be  off- 
set by  emissions  generated 
by  developing  countries. 

But.  whatever  the  doubts 
about  the  impact  of  emission 
controls,  their  impact  on 
energy  producers  and  users 
will  be  felt  for  years  to  come. 


'£***’  - - 


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T jaer  year  in  South  Humber  Bank,  UK,  one  of  the  wonders  of  technology 
collided  with  one  of  the  wonders  of  nature  and  something  wonderful  happened. 

Nature  survived. 

The  largest  combined  cycle  power  plant  in  Europe  was  under  construction. 

Unfortunately,  it  was  on  a site  adjacent  to  a feeding  ground  for  migratory  birds. 

Fortunately,  the  company  doing  the  construction  was  ABB.  You  see,  ABB  is  one  company 
that's  not  only  committed  to  the  business  of  electric  power  generation,  it’s  also  committed 
to  the  preservation  of  the  environment. 

And  it’s  a commitment  that  stretches  from  ABB’s  senior  management 

all  the  way  through  to  its  subcontractors  on  the  construction  site. 

Which  is  why  during  the  months  between  September  and  March, 
construction  on  the  plant,  which  might  have  alarmed  the  migrating  birds  and 
prevented  them  from  feeding,  was  abruptly  stopped. 

The  power  plant,  which  is  representative  of  modem  power  plant  technology 
(highly  efficient  with  minimal  impact  on  the  surrounding  environment),  was  finished 
only  after  the  birds  had  completed  their  annual  migration  through  the  area. 

A fact  that  made  English  environmentalists  very  happy. 

Not  to  mention  the  birds. 


INGENUITY  AT  WORK 


TECHNOLOGY  • by  Michael  Peel 


Tide  turns  to 
new  horizons 


As  time  runs  out 
on  carbon-based 
fuels  the  search  is 
on  for  sustainable 
alternatives 

Hydrogen  power  would  be  a 
scientifically  elegant  solu- 
tion to  the  problem  of  global 
wanning.  Its  appeal  lies  in 
its  theoretical  cleanliness: 
the  simplest  element  reacts 
with  oxygen,  releasing 
energy  and  producing  only 
water. 

Hydrogen  is  just  one  of  a 
number  of  energy  sources 
that  might  be  termed  the 
technologies  of  tomorrow. 
These  are  promising  poten- 
tial alternatives  to  fossil 
fuels  that  have  yet  to  receive 
the  publicity  given  to  meth- 
ods of  renewable  energy  gen- 
eration such  as  solar  and 
geothermal  power 

That  could  be  about  to 
change.  The  world's  car- 
makers,  for  instance,  are 
coming  to  the  conclusion 
that  hydrogen-powered  fuel 
cells  will  produce  vehicles 
that  do  not  damage  the  envi- 
ronment. 

Elsewhere,  environmental 
campaigners  are  arguing  the 
case  for  well-known  ideas 
they  believe  have  never  been 
exploited  to  their  full  poten- 
tial. In  the  UK,  for  instance. 
Greenpeace  is  lobbying  for 
renewed  research  into  wave 
energy  amid  signs  that  the 
government  thinks  the  tech- 
nique shows  promise. 

In  each  instance,  the  pro- 
ponents of  the  technologies 
of  tomorrow  are  working 
from  the  premise  that  the 
combustion  of  carbon-based 
fuels  must  stop. 

Even  the  oil  industry  has 
been  making  contingency 
plans.  Royal  Dutch/SbeU 
revealed  last  month  that  it 
was  collaborating  with 
Daimler-Benz  on  research  to 
develop  a hydrogen-powered 
car  engine  that  could  match 
the  performance  of  petrol 
and  diesel-fuelled  derices. 

The  cost  barriers  to  ach- 
ieving this  aim  are  familiar 
to  those  who  have  promoted 
renewable  energy.  While 
hydrogen-powered  cars  are 
quieter  and  50  times  more 
efficient  than  conventional 
vehicles,  fuel  cells  are  bulk- 
ier and  many  times  more 
expensive  to  make  than 
internal  combustion  engines. 

However,  these  issues  are 
being  tackled  with  some  suc- 
cess. Ballard  Power  Systems, 
a Canadian  company,  has  in 
the  past  eight  years  achieved 
at  least  80  per  cent  reduc- 
tions In  the  size  of  fuel  cells 
and  the  cost  per  unit  of 
power  generated. 

Mercedes-Benz,  part  of 
Daimler-Benz,  last  year 
unveiled  a significant 
advance  - a car  powered  by 
hydrogen  derived  from  liq- 
uid methanol  stored  on 
board.  The  system  elimi- 
nates the  bulky  pressurised 
storage  tanks  needed  for  liq- 
uid hydrogen  fuel. 

The  Mercedes-Benz  team  is 
optimistic.  Last  year.  JUrgen 
Hubbert,  head  of  passenger 
car  development,  predicted 
that  the  company  would  pro- 
duce a commercially  viable 
fuel-cell  powered  vehicle  by 
2005.  Ferdinand  Panlk,  bead 
of  the  company’s  fuel  cell 
project,  says  hydrogen 
power  ts  “the  alternative 


with  the  greatest  chance  of 
competing  with  the  combus- 
tion engine". 

Greenpeace's  arguments 
for  wave  power  are  sus- 
tained by  a similar  convic- 
tion that  it  has  recognised 
an  idea  whose  time  has 
come.  It  says:  "By  falling  to 
back  wave  energy,  the  UK 
missed  an  opportunity  to 
lead  the  world  in  pioneering 
new  technology  and  creating 
much  needed  jobs  in  science 
and  engineering.” 

Greenpeace  claims  the  UK 
could  generate  almost  half 
its  current  electricity  con- 
sumption from  offshore 
wave  devices.  Many  installa- 
tions could  generate  electric- 
ity at  a cost  of  less  than  5p 
per  kilowatt  hour  fkWh). 

That  would  make  wave 
power  competitive  with 
other  forms  of  renewable 
energy  that  have  enjoyed 
much  greater  support  from 
national  governments  and 
the  European  Union.  An  EU- 
funded  study  estimated  the 
following  average  costs  lor 
electricity  generated  by 
renewable  methods:  photo- 
voltaic 32.5  Ecucents  per 
kWh;  hydroelectric  825;  geo- 
thermal 7.00:  wind  energy 
5.79  and  biomass  5.50.  Those 
rates  compare  with  a mini- 
mum cost  of  about  42  Ecu- 
cents per  kWh  for  conven- 
tional power  production. 

It  is  not  only  Greenpeace 
that  has  been  putting  the 
case  for  the  viability  of  wave 
energy.  John  Battle,  energy 
minister  in  the  UK  govern- 
ment, said  last  year  that  he 
did  not  believe  the  potential 
for  offshore  wave  power  had 
been  properly  explored. 

The  Department  of  Trade 
and  Industry  will  shortly 
produce  a report  that  is 
expected  to  recommend  a 
reassessment  of  the  potential 
of  wave  energy.  The  recent 
burst  of  activity  has 
prompted  Stephen  Salter, 
the  inventor  of  a promising 
wave  energy  generation 
device  in  the  1970s,  to  pro- 
fess that  he  is  “quietly  hope- 
ful" about  the  future  pros- 
pects of  wave  power. 

Perhaps  the  most  encour- 
aging feature  of  the  search 
for  alternatives  to  fossil 
fuels  is  the  number  of  ideas 
being  floated.  If  hydrogen 
power  or  wave  energy  fail  to 
deliver,  there  are  plenty  of 
captivating  concepts  waiting 
to  take  their  places. 

For  example,  IT  Power,  a 
UK-based  company,  Is  about 
to  start  a project  to  harness 
the  energy  of  marine  cur- 
rents. The  company  has  an 
EU  grant  of  Ecu  im  to  build 
the  world's  first  full-size 
marine  current  turbine  - 
essentially  an  underwater 
windmill  - connected  to  a 
national  electricity  grid. 
Equally  imaginative,  and 
even  more  bizarre-sounding, 
are  efforts  to  develop  a car 
powered  by  the  vaporisation 
of  liquid  nitrogen.  As  the 
nitrogen  changes  from  a liq- 
uid to  a gas,  an  increase  in 
pressure  drives  the  pistons 
of  the  engine. 

Even  nitrogen's  low  boil- 
ing point  of  minus  196 
degrees  centigrade  need  not 
prove  an  insurmountable 
barrier  to  exploiting  the  ele- 
ment at  everyday  tempera- 
tures. After  all,  hydrogen 
ceases  to  be  liquid  only  at  a 
cool  minus  258  degrees  centi- 
grade. 


rf  a ? 5.  fcr  7 m a $ ^ » 


THURSDAY  SEPTEMBER  10  199$ 


WORLD  ENERGY  6 "Y 

: 

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As  off  prices  ftav#  tumbled 

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promrt^aitertaliTe 


Ray  of  swc  the  idea  of  non-fossa  tuete  providing  most  of  the  world's  energy  needs  Is  now  plausible 

RENEWABLE  ENERGY  ■ by  Vanessa  Houlder __ 


Clean  power  needs  will  power 


Actions  must 
match  rhetoric  if 
the  world  is  to 
move  away  from 
fossil  fuels 


Will  the  next  century  be 
fuelled  by  renewable  energy? 
The  idea  of  relying  on  the 
sun.  wind  and  other  non-fos- 
sil sources  to  meet  most  of 
the  world's  energy  needs 
would  once  have  seemed  fan- 
tastic. Now  it  is  plausible. 

“Just  as  the  economic  mir- 
acles of  the  20th  century 
were  powered  by  fossil  fuels, 
the  21  st  century  may  be 
marked  by  an  equally  dra- 
matic move  away  from  fossil 
fuels  and  the  environmental 
threats  they  carry,' " accord- 
ing to  the  Washington-based 
Worldwatch  Institute. 

Several  factors  are  likely 
to  stimulate  the  use  or 
renewable  energies.  One  is 
the  worldwide  effort  to  stabi- 
lise the  earth's  climate, 
which  will  require  a reduc- 
tion in  the  emissions  from 
fossil  fuels. 

Another  is  the  improving 
economic  viability  of  renew- 
able sources.  As  the  technol- 
ogy has  Improved  and  vol- 
umes increased,  the  prices  of 
solar  power  and  wind  energy 
have  Men  sharply. 

That  said,  they  still  find  it 
hard  to  compete  directly 
with  conventional  energy 
sources,  some  of  which  have 


also  fallen  in  price.  More- 
over. if  international 
demand  for  energy  falls  sub- 
stantially - perhaps  as  a 
consequence  of  trying  to 
curb  carbon  dioxide  emis- 
sions - it  could  inhibit  the 
growth  of  renewables,  by 
lowering  the  price  or  conven- 
tional energy,  such  as  oil 
and  natural  gas,  still  further. 

Renewable  energy  is  being 
taken  increasingly  seriously 
by  conventional  energy  com- 
panies. Royal  Dutch/Shell 
has  predicted  that  the  mar- 
ket share  of  renewable 
energy’  resources  will  grow 
rapidly  between  2025  and 
2050.  when  they  could 
account  for  half  the  world’s 
energy  needs. 

But  this  growth  will  be 
from  a small  base.  The  Paris- 
based  International  Energy 
Agency  says  that  renewable 
energy  accounts  for  only 
about  4 per  cent  of  the 
energy  needs  of  its  members, 
which  are  drawn  from  indus- 
trialised countries.  This  sta- 
tistic excludes  hydroelectric 
power  on  the  grounds  that 
the  policy  issues  governing 
its  development  differ  from 
those  of  other  renewable 
sources. 

Overall,  renewable  energy 
sources,  mainly  in  the  form 
of  biomass  and  hydroelectric 
power,  supply  between  15 
and  »-2Q!  per  cent  of  the 
world's  energy  demand,  the 
LEA  says. 


Countries  are  taking  dif- 
ferent approaches  to  renew- 
able energy  depending  on 
their  climate,  geography  and 
resources.  There  are  a num- 
ber oi  renewable  energy 
sources  to  be  considered, 
«aeh  at  different  stages  of 
development.  These  range 
from  the  traditional  practice 
»i  burning  wood  for  heat 
through  to  advanced  pro- 
cesses, such  as  biomass  gas- 
ification for  electricity  gener- 
ation which  is  only  starting 
to  come  on  stream. 

The  policies  chosen  to 
encourage  renewable  energy 
also  vary  markedly.  Govern- 
ment policy  may  be  influ- 
enced by  factors  not  directly 
linked  to  energy'  issues.  For 
example,  in  some  countries, 
biofuels  are  subsidised  on 
the  grounds  that  they  may 
help  to  maintain  a country’s 
ability  to  produce  food  and 
maintain  rural  employment 
levels.  One  of  the  oldest 
schemes  is  Brazil's  20  year 
old  price  support  for  ethanol 
from  sugar  cane,  which  is 
used  as  an  alternative  to  pet- 
rol in  cars.  In  addition  to 
helping  cut  carbon  emis- 
sions. this  scheme  was 
designed  to  help  support 
Brazil's  sugar  cane  industry. 

The  most  common 
approach  by  governments  to 
stimulate  the  market  for 
renewable  energy  by  is  the 
use  of  economic  or  tax  incen- 
tives or  by  introducing  guar- 


anteed or  favourable  mar- 
kets. 

Far  example,  many  coun- 
tries attempt  to  encourage 
renewable  resources  using 
favourable  buy-back  rates 
(the  tariff  obtained  by  inde- 
pendent power  producers  for 
sales  of  electricity  to  the 
grid). 

Another  approach  is  to 
offer  capita]  subsidies  on  the 
installation  or  renewable 
energy  systems-  One  of  the 
most  ambitious  is  Japan’s 
use  of  market  guarantees 
and  tax  incentives  in  a solar 
rooftop  programme  launched 
in  1993. 

These  schemes,  which  sub- 
sidised half  the  installation 
cost  to  consumers  and  two 
thirds  of  the  cost  to  commer- 
cial building  owners, 
resulted  in  nearly  10,000 
homes  receiving  silicon  solar 
tiles  directly  Into  their  roof- 
tops by  1997.  The  programme 
is  credited  with  helping 
Japan  win  around  30  per 
cent  of  the  world  photovol- 
taic market  last  year. 

Green  pricing  schemes,  in 
which  consumers  can  opt  to 
pay  more  for  renewable  elec- 
tricity. have  proved  popular 
in  some  - although  not  all  - 
countries. 

Public  research  and  devel- 
opment is  another  tool, 
although  not  one  used  as 
extensively  as  some  would 
hope.  Research  into  renew- 
able energy  stands  at  less 


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than  9 per  cent  of  energy 
R&D  budgets  in  industria- 
lised countries,  according  to 
the  Worldwatch  Institute. 

Some  countries  have 
announced  targets  for 
renewable  energy  sources, 
which  may  help  raise  aware- 
ness of  renewable  energy 
and  co-ordinate  decision 
making. 

Another  government  pol- 
icy that  may  indirectly  have 
helped  promote  renewables 
in  some  countries  is  tbe 
deregulation  of  tbe  electric- 
ity industry,  which  has 
made  it  easier  for  indepen- 
dent power  producers  to 
gain  access  to  the  distribu- 
tion grid.  Conversely, 
deregulation  brings  intense 
competition  on  short-term 
electricity  prices  and  high 
discounts  which  put  projects 
with  high  capital  costs  but 
low  running  costs,  typical  of 
many  renewable  sources,  at 
a disadvantage. 

Government  policy  can  be 
unhelpful  to  renewables  in 
other  ways,  too.  Existing 
subsidies  of  conventional 
fuels,  such  as  coal  and 
nuclear  power,  may  hamper 
the  efforts  of  renewable 
energy  sources  to  be  cost-ef- 
fective. Another  potential 
barrier  - particularly  as 
renewables  become  more  sig- 
nificant - could  be  the  costs 
of  transmission,  grid-connec- 
tion and  back-up  capacity. 

Much  remains  to  be  done. 
According  to  the  DBA.  gov- 
ernments need ‘to  invest 
more  In  research  and  devel- 
opment, they  need  to  elimi- 
nate subsidies  for  conven- 
tional finis  and  they  need  to 
ensure  that  energy  prices 
reflect  the  environmental 
costs  to  society  of  producing 
and  delivering  energy. 

In  short,  says  the  organisa- 
tion. they  need  to  ensure 
that  their  policies  match 
their  rhetoric.  “To  achieve 
the  substantial  role  expected 
of  renewables  in  the  future, 
enthusiasm  needs  to  be  har- 
nessed to  specific  action.” 


seen 

their task  complicated  even 
further.,  • 

Although  none  of  .the 
leading  oil  and  natural  gas 
companies  has  announced 
any  formalbntbacks  to 
alternative  energy  . 
programmes,  there  is  little 
doubt  that  some  projects 
that  looked  viable  only  last 
year,  when  oil  priCes. 

averaged  more  than  $19  a 

barrel  have,  receded  into 
tbe  distance. 

But  progress  is  still  being 
made,  say  executives, 
although  the  worsening 
economk.envirriiiinent, 
especially  in  Japan  and 
elsewhere  in  Asia,  has 
caused  some  projects  to  be 
cancelled. 

Britain's  two  leading  oil 
companies  have  adopted 
different  positions  in  regard 
to  alternative  energy 
sources.  Both  British 
Petroleum  and  Royal 
Dutch/Shell  have  made 


much  orthfilr  plans  to 
expand  in  this  area,  but 
their  focus  differs 

substantially. 

BP  has  decided  to 
concentrate  on  solar 
energy,  where  the  costs  of 
panels  are  Ming  steadily 
as  producers  move  towards 
larger  manufacturing  units, 
production  costs  are  Ming 
at  a rate  of  5 to  10  per  cent 
a year,  according  to 
executives.  The 
development  of  thinner 
films  new.  non-silicon 
panels,  promises  to  deliver 
further  cost  savings,  thus 
ensuring  that,  over  time, 
solar  continues  to  move 
downward  on  the  cost  path 
relative  to  other  fuels. 

Shell,  on  the  other  hand, 
is  developing  several 
alternative  technologies,  in 
large  pari,  because  it 
believes  that  solar  cannot 
cover  all  the  market 
opportunities  that  might 
arise.  “Solar  offerings  tend 
to  be  relatively  small  in 
size,"  says  Jim  Dawson, 
president  of  Shell 


believes  that  bfeftnss# 
use  of  trees  and  otttfaj.  u ;_T 
vegetation  to  firebp&js^..:  £ 
and  wind  power  on^t; 


•rH* 


projects  otupto-idb 
megawatts. 

Mr  Dawson ; — 
that  solar  is  not-  aldna  iaUDT 
enjoying  improved  -f  A\- 

economics.  “As  other  . . 
technologies  get  more.  :DV-.a 
attention  then  their  costa  . ^ 
will  also  came  dawrul.  -N^- 
would  say  cost  reductions.'1,: 
and  technical 
improvements  are  not 
unique  to  solar."  . .. 

He  points  to  other  , .....  NT, 
companies,  such  asEnrraau-’- 
in  the  US.  which  are  also -N 
involved  In  developing  j.hn: 
renewable  technologies. 

But;  he  argues,  companies-*; 
need  to  focus  on  a few  <jT 
the  most  promising  areas  1 
because  "if  you  are  in  all  HSU 
or  12  renewable  - ==•• 

technologies  then  you  will ; 
be  weak  in  everything".  :’.Y. 

Although  solar  and  other  j 
renewable  technologies  may. 
not  be  able  to  compete 
generally  with  conventional 
fuel  sources  for  20-30  years,  - 
both  BP  and  Shell  are  keehY" 
to  demonstrate  asw&h&  L J.l 
current  applications  asuJT^ 
possible.  Shell  recently 
installed  the  world's  ; 


panels  on  one  of  Its  d£t  •:£*$> . 
platforms  off  the  coast 
Brunei  in  r — “ — 


total  of  650  panels- 


Lit 

spark-free”  power  were.;i^i 


producing  65kw  of, 


installed,  thus  innJiwing'.Ti 
the.safety  of  the  . . . 

installation,  according tcT rf 


Mr  Dawson. 

BPpoints  to  anew  . .?■  Ju 
scheme  in  the  PhilippIneS,.Lu' 
where  900,000  people  living  ' 
in  an  area  not  served  by  thei 
national  power  grid  will  be  : 
supplied  with 

solar-generated  electricity.  .;'' 
BP  says  solar  is  also  - 
making  steady  inroads  into  ! 
some  high  value  niche 
markets,  sue*  as  powering. .- 
telecommunications 
equipment  in  remote 
locations.  And  although  if 1 l 
may  be  some  years  before  it . 
can  compete  directly  with  ; 
conventional  power 
sources,  there  are  2bn  A 
people  around  the  world  , • - 
who  are  not  served  by 
conventional  systems.  ' 


AHurrc.Stttl  and  BPtanrottw  wtodtothalr  saSs 


SOCIAL  RESPONSIBILITY  • by  Robert  Corzine 


Beyond  the  bottom  line 


The  industry's 
commitment  to 
best  practice  will 
be  tested  by  low 
prices 


Over  the  past  year  or  so  the 
phrase  “social  responsibil- 
ity” has  been  added  to  the 
lexicon  of  the  international 
oil  industry.  But  although  it 
is  bandied  about  by  chair- 
men and  chief  executives  at 
annual  shareholder  meet- 
ings. its  meaning  for  the 
industry  remains  ill-defined. 

What  is  clear,  however.  Is 
that  the  role  of  energy  com- 
panies has  become  blurred 
in  recent  years,  as  the  indus- 
try moves  into  ever  more 
remote  or  politically  com- 
plex areas  of  the  world  in 
search  of  new  reserves. 

That  quest  has  increas- 
ingly put  oil  companies  In 
conflict  with  local  people 
and  pressure  groups.  In 
other  cases  they  have  found 
themselves  involved  in  coun- 
tries, such  as  Algeria,  where 
murky  political  situations 
threaten  to  tarnish  their  cor- 
porate reputations. 

The  social  responsibility 
issue  has  provoked  a range 
of  reactions  from  the  indus- 
try. Companies  such  as 
Royal  Dutch/Shell.  the 
Anglo-Dutch  group  which 
has  twice  in  recent  years 
found  itself  the  target  of 
public  outrage  - first  over 
the  planned  sinking  in  1995 
of  the  Brent  Spar  offshore 
platform  and,  later  that  year, 
over  its  role  in  Nigeria  - has 
made  much  of  its  stand  on 
social  responsibility. 

So.  too,  has  British  Petro- 
leum, which  was  accused  by 
some  of  supporting  army 
death  squads  in  the  C-asan- 
are  region  of  Colombia. 

This  year  both  companies 
published  detailed  reports  on 
the  social  impact  of  their 


worldwide  activities.  They 
have  promised  even  more 
detailed  accounts  in  future, 
including  independent 
audits  of  their  wider  perfor- 
mance. Other  companies  are 
expected  to  follow  suit 

Internal  corporate  debates 
over  social  responsibility 
have  often  been  intense  and 
especially  so  within  those 
companies  that  have  experi- 
enced public  criticism  for 
their  activities.  In  some 
cases  companies  have 
sought  outside  advice.  At  BP 
Sir  John  Browne,  the  chief 
executive,  recently  commis- 
sioned Lord  Howe,  a former 
Chancellor  of  the  Exchequer 
in  Britain,  to  investigate  the 
company's  actions  in  Colom- 
bia. as  well  as  to  report  more 
widely  on  the  social  respon- 
sibility issue. 

Although  most  oil  compa- 
nies accept  the  need  for 
wider  consultation  when 
they  embark  on  big  projects 
that  can  alter  whole  econo- 
mies and  affect  large  num- 
bers of  people,  underlying 
attitudes  differ  widely. 

Some  companies  seem  gen- 
uinely to  have  recognised 
the  need  to  play  a adder  role 
in  society,  although  it  is  not 
always  clear  whether  such 
policies  are  embraced 
throughout  a company. 
Senior  executives,  such  as 
Mark  Moody  Stuart,  the 
chairman  of  Shell,  say  soda] 
responsibility  is  a logical  fol- 
low-on from  greater  corpo- 
rate awareness  of  safety  and 
the  environment. 

But  unlike  safety  and  the 
environment,  which  lend 
themselves  to  technical  solu- 
tions. social  issues  are  often 
complex  and  subtle.  They 
can  easily  defy  the  “quick 
fixes"  that  appeal  to  time 
and  cost-conscious  oil  com- 
pany managements. 

Not  surprisingly,  many 
companies  remain  reluctant 
to  become  involved  in  areas 


in  which  they  have  little 
experience.  Even  those  that 
see  a need  to  be  more  active 
often  find  themselves  with- 
out the  necessary  skills  to  do 
so  effectively. 

“Oil  companies  need  two 
types  of  people,"  says  one 
UK  executive  who  has  been 
involved  in  his  company's 
social  responsibility  debate. 
"We've  always  had  the 
focused  industry  types  but 
now  we  also  need  people 
who  can  sit  under  the  trees 
and  talk  to  locals.  Unfortu- 
nately it  Is  bard  to  bring 
them  together." 

The  lack  of  skilled  people 
has  left  an  imbalance 
between  policies  - which  in 
some  companies  have  been 
worked  out  at  the  highest 
levels  and  in  almost  aca- 
demic detail  - and  action. 

That  imbalance  is  one  rea- 
son why  sceptics  doubt  the 
sincerity  of  oil  industry 
statements  about  its  commit- 
ment to  a broader  social 
agenda. 

But  other  factors  also 
explain  why  tbere  is  no  com- 
mon approach  to  the  issue. 
National  and  corporate  cul- 
tural differences  play  a part 
in  how  companies  respond  to 
the  social  responsibility 
issue.  Although  it  is 
assumed  in  many  quarters 
that  European  oil  companies 
are  more  “progressive,"  US 
companies  may  be  Instinc- 
tively" better  at  recognising 
the  need  to  involve  locals, 
given  their  experience  in 
dealing  with  the  wide  range 
of  local,  regional,  state  and 
national  authorities  and 
interest  groups  in  the  US. 

Some  executives  also  won- 
der whether  the  issue  may 
prove  transient.  They  note 
that  some  widely  publicised 
incidents  involving  oil  com- 
panies have  been  provoked 
by  pressure  groups  and, 
thus,  may  not  reflect  broader 
shareholder  or  public  con- 


cerns. Others  wonder 
whether  they  will  be  penal- 
ised by  investors  for  spend- 
ing money  on  what  some 
may  see  as  marginal,  or  even 
dubious  activities. 

One  of  the  biggest  conun- 
drums facing  individual 
companies  is  how  far  they 
should  go  in  proriding  ser- 
vices that  are  normally  the 
responsibility  of  govern- 
ment. Traditionally,  ofl  com- 
panies have  confined  their 
assistance  to  local  communi- 
ties to  one-off  projects  that 
do  not  carry  with  them  a 
long-term  commitment  But 
the  failure  of  many  central 
governments  in  the  develop- 
ing world  to  ensure  that  a 
portion  of  oil  and  gas  reve- 
nues filters  back  to  the  prod- 
ucing regions  has  caused 
some  oil  companies  to 
re-think  that  approach. 

But  companies  considering 
a more  proactive  stance  say 
they  have  run  into  practical 
and  political  barriers.  There 
are  worries  that  a more 
proactive  approach  may  put 
them  In  conflict  with  the 
central  government  that 
licenses  their  activities. 
Companies  also  remain  wary 
about  extended  commit- 
ments to  specific  areas. 
What  happens,  they  ask, 
when  they  want  to  leave  an 
area  or  country? 

Although  it  is  clear  that  a 
strong  corporate  will  can 
overcome  many  problems, 
some  observers  wonder 
whether  the  commitment  to 
social  responsibility  can  sur* 
vive  a prolonged  bout  of  low 
oil  prices.  Most  find  it  easier 
to  make  cuts  across  the 
board,  and  executives  admit 
it  is  hard  to  keep  social  and 
environmental  programmes 
going  in  a time  of  tight  bud- 
gets. Yet  it  is  the  consistent 
application  of  social  action 
programmes  - not  their  size 
in  money  terms  - that  leads 
to  success. 


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FINANCIAL  TIMES  THURSDAY  SEPTEMBER  10  1998 


VII 


WO 


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Regional  focus:  South  Asia 


PROFILE 


Speed  the  key  to 
land  of  opportunity 


A'  year  ago;  BG,  the  former 
British  Gas,  paid  $55m  to 
• buy  a 61  per  cent  share  to  a~- 
privately -owned  Indian  gas  . 
distribution  company,  “ 

' Gujarat  Gas.  With  a- . 
delivery  system  of  930kms  • 
of  pipelines,  Guiarat  Gas  - 
sells  TDO.OOOcu  m of  gas  n 
day  to  nearly  280  industries, 
900  commercial  users  and 
around.  90,000  domestic-  • - 
customers  in  India V- 
western  state  of  Gujarat, 
one  of  the country’s  most 
Industrialised  states.  BG 
says  sales  growth  has  only 
(me  constraint  the  lack  of - 


BG  is  hoping  that- the-, 
acquisition  of  this  captive 
customer  base,  with  its  \ 
dear  potential  to  giow,  wfll 
give  it  a boost  in  the  race  to 
build  a liquified  natural  gas 
terminal  - and  an  7 
integrated  gas"  busfcaess  - in 
India. 

While  the  heavyweights  : 
of  the  global  gas  industry 
are  vying  to  build  LNG. 
terminals  in  India,  only  a 
handful  are  likelytp  be 
constructed  in  the  next  few 
years,  due  to  the  lack  of 
credit-worthy  customers. . . 
But  with  the  GujaratGas 
network  under  its, control,  ' 
BG  is  confident  that  its 
proposed  9500m  LNG 
terminal  and  pipeline 
project  at  Gujarat’s  Pipavav 
Port  will  be  one  of  the 
projects  that  gets  off  the  ■. 
ground. 

Though  It  needs  other  . 
clients  to  make  the  project 
viable,  company  officials 
say  that  Gujarat  Gas  would 
be  a prime  potential-  ■ 
customer  for  the  Z5m 
tonnes  of  LNG  lhat  would 
come  into  the  terminal  each 
year.  . 

The  strategy  Is  to  grow 
Gujarat  Gas  by  bringing  in 
12tfG;r  says  A fan  Ross  Guy, 
director  LNG,  for  British 
Gas  India.  BG  is  graining  to 
be  the  first  company  with  a 

ftmgHnning  UK  terminal  . 
in  India.  Its  target  date  for 
commencing  gas  shipments 
is  the  fourth  quarter  of  2001 
- the  same  date  set  by  rival 
Enron.  But,  in  a bid  to  get 
ahead,  BG  is  moving 
forward  without  waiting  to 
tie  up  aH  its  financing.  . 

“We’ve  taken  a conscious 
decision  that  we  are  sot 


going  to  let  financing  stand 
in  our  way,”  says  Mr  Ross  - 
Guy.  - 

BG  has  already  put  out .. 
bids  for  the  huge  LNG  ' - • 
tanks  - the  part  of  the' 
project  which  requires  the  ' 
longest  lead  time  for 
completion.  Once  it  has 
selected  the  contractor,  it 
intends  to  quickly- give  the 
nod  for  design  and 
preparatory  work  on  the 
tanks  to  start.  The  company 
also  expects  to  put  out  a hid 
for  the  front  engineering  * 
within  the  next  few  months  ‘ 
and  hopes  to  give  formal 
go-ahead  for  work  to  start  . 
in  April. 

While,  the  strategy  may 
seem  risky.  BG  officials  say  . 

that  terminal  projects  that  • 
can  prove  to  investors  that 
they  will  be  early  to  the  - 
market  will  have  the 
advantage  in  the  . 
competition  to  secure  other 
credit-worthy  customers.  : 
“We  see  the  ability  to  move  ‘ 
quickly  as  aneof  pur  key 
competitive  strengths.'7 
says  Mr  Ross  Guy. 

“Schedule  is  key." . 

BG  is  counting  on  other 
factors  to  lure  customers  as 
well.  The  privately-built  ' 7 
Gujarat  Pipavav  Port  is  ' ’ 
viewed  as  one  Of  the  best  > 
.ports  In  the  world; and  the' 
Port  Trust  of  Singapore  has 
just  acquired  a 40  per.  cent 
stake  In  the  facility.  With  a - 
chain  of -three  islands  • 

creating  a natural  Harbour, 
die  port  can  operate  ' 
year-round  without  the. 
need  for  an  expensive 
breakwater,  which  will  give 
the  BGterminal  a .• 
significant  cost  advantage 
over  other  projects.  ; 

ha  the  meantime,  Gujarat  . 
Gas  is  expanding  its  \ - - 
distribution  network  in 
anticipation  of  new  gas  . . . 
imports.  Since  its  takeover 
by  BG  a year  ago,  Gujarat 
- Gas  has  nearly  doubled  the 
amount  of  gas  sold  in  the 
system  - and  it  is  expected 
to  increase  by  an  additional 
SO  per  cent  over  the  next  - 
year  or  so." 

The  company  is  investing 
around  221m  to  build  a 
73km,  13-inch  high-pressure 
pipeline  from  Hazira  to 
Ankleshwar.  which  could 
be  used  to  transport  natural  ; 
gas  from  the  site  of  tbe 


; proposed  BGtenninal  to 
the  Gujarat  Gas  customer  - . 
Wase.  Kevin.  Wearing,  asset 

rnarmgttr  nf  Bririch  dug 

.India,  saysthat  Gujarat  Gas 
•is  also  planning  to 
- construct  branch  pipelines 
: toother  areas  of  potentially 

high  demand  alnng  the  : 

Haztra- Ankleshwar 
corridor.  • 

Besides  its  Gujarat  Gab 
network,  BG  is  counting  on 
one  other  card  to  Help  It.  /•. 
-push  its  LNG  project  ■ 
through.  A year  and  a half  ; 
ago,  BG  pre-qualified  to 
build  a power  plant  at - 
: Pipavav  hot  the.  project  was 
put  on  hold  due  to  alack  of  * 
naptha.  However,  once  ' 

. natural  gas  is  befog 
imported  Into  India  4he 
project  could  be  viable  - as  ; 

• a gas-fired  plant  - an*  - ' .. 
would  he  another  potential 
customer  for  the  BG  * - 
. terminal. : •„  . 

• , . BG's  foray  into  gas  ’’  * 
^distribution  is  not  limited  • . 
to  Gujarat  Gas.  The r’  * 

'wwnpany  bas  alcn  mtmria 

50-50 joint  venture  with  the 
Gas  Authority  of  India  _ - 
(Gail),  called  Mahanagair' 
Gasl  The  venture  has  beat 
srt  up  to  distribute  gas  to . 
fodnstrlal,  commercial  and 
residential  cnstnmers-in- . 
Bombay  and.  so  far,  BG  hss 
investedl&Tm  in  a 
greenfield  network  of  “ .’ 
W^IHesstiregas  •- 
transmisstonpipellnes  and ; 
low-pressure  pipes.  The  ' 
network  currently  serves 

mound  11,000  rerfiTanttal 

-customers  and  provides ' 
-compressed  natural  gas  to  - . 
around  7,000  taxis.  It  is 

eiqpected  to  be  distributing 
imcum  of  gas  by  the  end 
; of  the  yean  - 

As  with  Gujarat  Gas, 
Wearing  says  the  only  ...* 
constraint  to  growth  is  the 
limited  supply  of  gas.  BG' 
has  envisaged  a total 
investment  of  $L00m  In  the 
project  in  the  next  10  years.  - 
. BG  has  made  India,  with 
its  huge  gas  market,  one  of 
its  focus  countries  and  is. . 
considering  all  possibilities 
togrowTitsbustaes&iMr  - 
Ross  Guy  says:  “We  see 
India  as  a land  of 
opportunities!" 

Amy  Louise  Kazmin 


Sap’* ^ 1 

ySr..  -J*.  . «~*  y*-*  ■- 


Power  cut  US  sanctions  against  India  after  its  nuclear  tests  in  May  brought  construction  of  Enron's  Guhagar  plant  to  a haft 


As  India’s  demand  for  energy  inexorably  rises  so  does  interest  and  investment  in  die 
country  by  the  world’s  leading  energy  companies.  Now,  reports  Amy  Louise  Kazmin 
all  they  have  to  do  is  find  customers  credit-worthy  enough  to  make  the  effort  pay 

Insatiable  hunger  for  power 


In  a country  starved  of 
power,  India’s  650MW  Gan- 
dhar  power  station,  run  by 
the  state-owned  National 
Thermal  Power  Corporation, 
currently  operates  at  less 
than  hair  its  capacity. 

Tbe  reason  for  this  dismal 
performance  is  simple;  the 
power  station  depends  on 
natural  gas  for  its  fuel. 
India’s  Indigenous  gas  pro- 
duction. of  about  25bn  cn  m 
is  far  short  of  the  90bn  cu  m 
demanded  by  industries  and 
power  plants.  So  the  Gan- 
dhar  power  station  gets  only 
a fraction  of  the  gas  it  needs. 

India's  gas  shortage  is 
expected  to  get  worse, 
although  by  how  much 
remains  a matter  of  debate. 
While  a government  commit- 
tee has  forecast  that  demand 
for  natural  gas  will  reach 
188bn  cu  m by  the  year 
2006-2007,  Anant  Bhatta- 
charya,  economic  adviser  to 
India's  stale-owned  Oil  and 
Natural  Gas  Corporation, 
expects  it  will  only  reach 
140bn  cu  m by  then. 

But  there  is  consensus  on 
one  point  With  domestic  gas 
production  likely  to  increase 
only  to  about  40bn  cu  m - or 
70bn  cu  m according  to  more 
optimistic  estimates  - by 
2007,  India's  demand  for  gas 
will  far  outstrip  available 
domestic  supply.  That  has 
made  India  one  of  tbe 
world’s  most  talked  about 
emerging  markets  for 
imported  natural  gas,  with 
most  global  ga6  opera- 
tors - including  Royal  Dutch 


Shell,  British  Gas,  Enron, 
Total,  Mobil,  Petronas  and 
Ras  Gas  - hoping  to  get  a 
piece  of  the  action. 

“ Anybody  who  is  anyone 
in  the  world  of  LNG  is 
talking  about  schemes  in 
India,”  says  Alan  Ross  Guy, 
director  of  LNG  for  British 
Gas  India 

In  the  long  run,  Indian 
bureaucrats  dream  of  estab- 
lishing pipelines  from  the 
gas  fields  of  Bangladesh, 
Central  Asia  and  the  Middle 
East  straight  into  India, 
which  would  be  the  cheapest 
method  of  supply.  But  such 
pipelines  are  a long  way  off. 

Bangladesh,  wary  of  over- 
dependence on  its  giant 
neighbour,  has  been  unable 
to  reach  a political  consen- 
sus for  changing  a policy 
which  bars  the  sale  of  natu- 
ral gas  to  India.  And  gas 
pipelines  from  the  west 
~where  there  are  plenty  of 
willing  seDers  - would  have 
to  ran  through  neighbouring 
Pakistan.  India’s  arch-rivaL 

Rajendra  Pachauri,  direc- 
tor of  the  Tata  Energy 
Research  Institute,  believes 
such  pipelines  will  eventu- 
ally bring  gas  to  India  but 
not  until  India  improves 
political  and  economic  rela- 
tions with  its  neighbours. 

“I'm  convinced  it  will  hap- 
pen," Dr  Pachauri  says.  “But 
when  it  will  happen,  God 
knows." 

Meanwhile,  most  talk  in 
the  industry  revolves  around 
setting  up  costly  LNG  termi- 
nals to  receive  natural  gas 


shipped  from  the  Middle 
East  Multinationals  such  as 
Shell.  Total,  British  Gas  and 
Enron  all  have  LNG  termi- 
nal prqjfiCtS  in  tile  planning 
stages  as  do  Indian  compa- 
nies, such  as  Reliance  iwH 
Finolex. 

Four  state-owned  Indian 
oil  and  gas  companies,  have 
formed  a joint  venture  to 
establish  two  LNG  terminals 
in  conjunction  with  Gas 
D Trance-  The  consortium, 
dubbed  Petronet,  is  now 
evaluating  bids  from  seven 
companies,  including  Shell, 
Mobil.  RasGas,  Petronas  and 
Quatar  General  Petroleum 
Corp,  to  supply  LNG  and 
participate  in  the  terminal 
prqjecti 

But  for  all  the  enthusiasm, 
would-be  gas  importers  still 
have  a big  hurdle  to  over- 
come: a shortage  of  credit- 
worthy Indian  customers 
which  can  act  as  a base  to 
secure  financing  for  the 
expensive  projects.  Most 
industry  analysts,  and  pro- 
spective investors,  agree 
that  only  a few  of  the  LNG 
terminals  proposed  will  ever 
get  the  financing  to  go 

ahAad. 

Tt’s  going  to  be  a tough 
act  for  these  people  to  sign 
up  customers  and  convince 
financiers,"  says  an  ofl  and 
gas  industry  expert  at  a lead- 
ing Indian  financial  institu- 
tion- “Many  of  these  projects 
won’t  see  the  light  of  day.” 

In  other  countries,  LNG 
projects  have  been  financed 
an  the  strength  of  long-term 


“take-or-pay"  contracts  with 
blue-chip  government  or 
quasi-government  utilities, 
which  promise  to  pay  for  the 
gas  whether  they  use  it  or 
not. 

In  India,  though,  most  pro- 
spective gas  importers  aim 
to  sell  to  private  power  pro- 
ducers that  are,  ultimately, 
selling  their  power  to  state 
electricity  boards.  But  after 
years  of  mis-management 
and  populist  power  give- 
aways, the  state  electricity 
boards  are  in  no  financial 
shape  to  stand  as  guarantors 
of  the  complicated  gas  sup- 
ply chain . 

Tf  the  primary  off-taker’s 
finanms  are  not  healthy,  the 
whole  supply  chain  is 
screwed.”  the  analyst  says. 

Finding  private  customers 
for  the  LNG  will  not  be  easy, 
either.  With  so  many  pro- 
jects now  being  discussed, 
potential  buyers  are  unwill- 
ing to  commit  themselves  to 
buy  from  one  scheme. 
Instead,  they  are  waiting  to 
see  whether  they  might  be 
able  to  find  a better  deal 
later. 

Indian  companies  are  also 
uneasy  with  making  such 
long-term  commitments, 
having  never  before  seen 
contracts  with  such  a long 
duration. 

The  Indian  market  is  just 
not  geared  up  to  undertake 
these  contracts,"  says  Mr 
Ross  Guy.  Some  would-be 
LNG  importers,  such  as 
Enron,  are  planning  to  use  a 
large  portion  of  the  gas 


themselves  but  even  Enron 
is  now  hoping  to  lock  in 
other  customers  to  make  its 
terminal  viable. 

India’s  government  has 
also  done  little  to  make 
investment  in  the  sector 
more  attractive.  Unlike 
petroleum  refineries  or 
power  projects.  LNG  termi- 
nals have  not  been  given 
recognised  “infrastructure” 
status,  which  would  entitle 
them  to  a tax  holiday. 
Imported  LNG  also  attracts  a 
tariff  of  23  per  cent  which 
prospective  importers  say 
would  make  LNG  uncompet- 
itive with  fiiels  such  as  nap- 
tha that  can  be  imported 
duty-free. 

India's  Petroleum  Ministry 
has  yet  to  announce  its  pro- 
posed regulations  - which 
leaves  open  many  key 
issues,  such  as  whether  pipe- 
lines will  be  open  to  any 
who  would  ship  gas  through 
them. 

But  while  most  companies 
scoff  at  their  competitors' 
prospects,  they  say  they  are 
confident  that  their  own  ter- 
minals will  be  built.  Enron, 
for  example,  which  is  plan- 
ning a 5m -tonne  terminal  is 
in  negotiations  now  with 
prospective  buyers  for  the 
2.5m  tonnes  it  will  not 
require  for  its  own  power 
plant  And  Dr  Bhattacharya 
has  no  doubt  that  the 
planned  Petronet  terminal 
will  come  into  being.  “Finan- 
cing should  not  be  a problem 
as  we  perceive  it."  he  says. 
“I  am  quite  optimistic." 


PAKISTAN  • by  Fartian  Bokhan 


Gas  masks  profound  weaknesses 


# 


Optimism 
surrounding 
domestic  finds  is 
disguising  existing 
problems 

The  Hub  Power  Company  on 
the  outskirts  of  Karachi  has 
been  embroiled  in  acrimoni- 
ous dispute  with  tbe  Paki- 
stani government  for 
months.  But  Hubco  is  not 
alone  in  that  as  almost  every 
member  of  Pakistan’s  pri- 
vate power  generation  sector 
is  at  loggerheads  with  the 
government 

The  government  wants 
Hubco  to  stash  a tariff  which 
it  says  is  too  bigh  while 
prime  minister  Nawaz  Sharif 
publicly  laments  the  tariffe 
promised  to  another  19  pri- 
vate power  companies.  All 
are  under  pressure  to  agree 
to  substantial  cuts. 

While  the  controversy 
rages,  Pakistan's  new  gas 
discoveries  have  offered  an 
element  of  hope  in  the  long 
run,  in  resolving  the  dispute 
with  the  power  companies. 

With  an  eye  to  the  higher 
cost  of-  imported  ail  driving 
Up  electricity  tariffe  in  years 
to  come,  the  government  has 
begun  assessing  the  extent 
' to  which  privately  owned 
thermal  power  plants  can  be 
converted  to  run  on  gas.  a 
cheaper  alternative. 

Transition  to  a gas  based 

- economy  is  the  way  out," 
says  the  chief  executive  of  a 

‘ :ltedgn  oil  company.  “If  the 
- . tnraatfou  is  iparte.  Pakistan 
'-would  sot  only  find  a way 
. out’ of  the  power  crisis  but, 

: more  importantly,  tackle  its 
“;«wty  crisis/* 

Senior  industry  executives 
. .And,'  government  officials 
-*greb  that  the  fixture- of  gas 
to  Pakistan’s  efforts 
I'-to  tackle  its  energy  needs. 
,Y3M  stakes  for  the  country. 

as  it  struggles  to 

- tfaive  off  a foreign  debt  cri- 
. ab, wxe  profound.' 

Guiforaz  Ahmed;  secretary 
of  the  ministry  of  petroleum 
and  natural  resources.'  told 


Wary  lest  their 
fingers  be  burned 


biftated  expectations;  lmfigenous  gas  may  mart  50  par  cant  of  demand  but  Pakistan  is  stfll  Bcrty  to  need  to  import 


adiMnv 


an  energy  conference  In 
Karachi  earlier  this  year 
that  “energy  supply  is  a very 
serious  challenge  as  tbe  eco- 
nomic survival  of  the  coun- 
try depends  on  it”. 

Although  industry  esti- 
mates vary,  senior  govern- 
ment officials  say  that  the 
potential  for  new  gas  finds 
could  be  as  high  as  2Q0tril- 
lion  cu  ft,  up  from  tbe  31  tril- 
lion cu  ft  discovered  so  far. 
The  gas  discoveries  are 
important  for  helping  nar- 
row the  country’s  interna- 
tional trade  deficit. 

Ldrt  year,  oil  imports  were 
valued  at  approximately 
S2bn  or  almost  a sixth  of 
total  import  value.  Govern- 
ment economists  say  that 
the  figure  amid  escalate  to 
about  $5bn  in  the  next  three 
to  five  years,  unless  other 
fuels,  such  as  domestic  gas, 
are  found  as  substitutes. 

Most  of  the  new  discov- 
eries are  the  result  of  the 
incentives  announced  in  I9S4 
when  Pakistan  liberalised  its 
policy  over  exploration 
agreements  for  foreign  com- 
panies. "The  exploration  and 
discoveries  can  take  up  to 
five  or  six  years,"  says  Nick 


Ainsley,  finance  manager  of 
Lasmo  OiL  The  1994  policy 
made  it  attractive  for  compa- 
nies to  come  and  take  a 
fresh  look  at  Pakistan.” 

The  industry  has  found  a 
lot  more  gas  than  people 
expected.  It  underlines  the 
view  that  Pakistan  is  quite  a 
substantial  gas  province" 
says  TV  Higgins,  rhamnan 
of  Shell  Pakistan,  referring 
to  months  of  growing  activ- 
ity in  tbe  gas  sector.  "We 
can  now  develop  the  natural 
gas  market" 

The  government  hopes  to 
use  the  gas  for  thermal 
power  plants,  domestic  use 
and  some  industrial  use. 
Some  officials  say  that  indi- 
ginoos  gas  may  be  able  to 
meet  as  much  as  50  per  cent 
of  Pakistan's  total  energy 
needs  (up  from  37.6  per  cent 
at  present)  If  the  new 
reserves  are  developed. 

According  to  official  esti- 
mates. transport  and  power 
generation  consume  more 
than  two  thirds  of  Pakistan’s 
imported  ofl.  Conversion  of 
vehicles  and  power  genera- 
tion by  domestic  gas  can 
help  to  cut  tbs  oO  bill  sub- 
stantially. 


It  is  a simple  recipe,  in 
theory,  but  Pakistan’s  trou- 
bled finances  are  reason  for 
scepticism.  Tbe  country  is  at 
present  trying  to  stave  off  a 
default  on  its  $42bn  foreign 
debt. 

Western  economic  sanc- 
tions after  Pakistan’s 
nuclear  tests  in  May  this 
year,  have  made  it  difficult 
for  the  country  to  repay  for- 
eign debt  and  some  hankers 
are  predicting  a foreign  debt 
default  which  would  dry  up 
new  commercial  lendings. 
The  implications  for  private 
businesses  are  severe. 

“Finding  new  bank  credits 
to  finance  exploration  activ- 
ity could  be  difficult.  Lend- 
ers argue  that  with  a high 
risk,  the  prospects  of  new 
gas  finds  and  the  promise  of 
large  financial  returns  alone, 
are  not  enough  to  overcome 
the  financial  problems."  says 
a foreign  banker  In  Karachi. 

Pakistani  officials  concede 
that  the  hopes  of  large  new 
gas  finds  may  be  premature 
unless  backed  by  foreign 
technical  and  managerial 

drills  and  Hnanrnc 

Even  if  domestic  explora- 
tion activity  is  boosted  by 


more  gas  discoveries,  there 
will  be  questions  over  how 
long  Pakistan  can  delay 
plans  to  lay  pipelines  for 
importing  gas.  “With  a popu- 
lation standing  at  138m  and 
growing  considerably,  Pakis- 
tan will  have  to.  eventually, 
import  gas."  adds  tbe  foreign 
banker. 

In  recent  years,  plans  for 
imported  gas  have  revolved 
around  pipelines  from  the 
central  Asian  republic  of 
Turkmenistan,  running  via 
Afghanistan,  and  a pipeline 
from  neighbouring  Iran,  in 
recent  months,  industry 
executives  have  become  con- 
vinced that  the  Afghanistan 
project  may  be  delayed  con- 
siderably due  to  the  pro- 
longed war  in  that  country, 
leaving  the  pipeline  from 
Iran  as  the  viable  option. 

However,  as  a senior  gov- 
ernment official  in  Islama- 
bad says:  “Tbe  pipeline  is  a 
distant  option,  especially 
because  of  the  millions  of 
dollars  in  costs.  But  well 
have  to  get  down  to  the 
drawing  board  reasonably 
quickly  to  plan  for  the 
future,  when  our  new 
reserves  start  drying  up.” 


Less  than  three  weeks  after 
Pakistan  carried  out  its  first 
nuclear  tests  in  May, 
tensions  between  the  islamic 
country  and  its  arch  rival, 
India,  were  high. 

But  officials  at  Islamabad’s 
ministry  of  water  and  power 
were  still  considering  plans 
to  sell  electricity  to  India. 

For  tbe  men  at  the  ministry, 
power  sales  to  India  are  a 
handy  way  out  of  the 
difficulty  in  tackling  the 
unprecedented  crisis  caused 
by  near  bankrupt  state 
electricity  companies. 

The  state  companies  say 
they  will  run  in  to  loss  after 
paying  at  least  an  estimated 
RpslOOb  ($2i.8hn)  for 
electricity  purchased  from 
privately  owned  thermal 
power  companies  during  the 

financial  year. 

The  idea  of  selling 
electricity  to  India  is  just 
one  of  the  many  proposals 
put  forward  to  improve  the 
cash  flow  of  state  owned 
companies.  It  comes  as 
Pakistan  struggles  to  resolve 
a continuing  dispute  with 
tbe  privately  owned  power 
companies. 

Prime  minister  Nawaz 
Sharif's  government  has 
ordered  investigations  on 
alleged  corruption  charges 
against  at  least  six  of  the  19 
private  power  companies, 
established  under  a 1994 
power  generation  policy. 

That  policy  promised  a 
tariff  of  R5  US  cents  per 
kilowatt-hour  of  electricity 
sold  to  the  state  owned 
companies  which  also  own 
the  national  power 
transmission  system.  In 
addition,  the  private  power 
companies  were  promised 
that  at  least  60  per  cent  of 
their  generated  power  would 
be  purchased. 

But  the  government's 
decision  to  begin  the 
corruption  probe,  on  tbe 
pretext  that  some  of  the 
companies  bribed 
government  officials  to 


obtain  contracts,  has  been 
widely  criticised  in  Pakistan 
and  abroad.  The  World  Bank 
has  urged  the  government  to 
ensure  that  the 
investigations  do  not  affect 
Pakistan’s  contractual 
obligations. 

“The  World  Bank 
continues  to  stress  that  any 
legal  actions  against 
individuals  found  guilty  of 
corruption  should  be 
undertaken  with 
transparency  and  due 
process  and  that  such 
proceedings  should  remain 
separate  from  commercial 
and  contractual  issues 
involving  the  EPF's 
(independent  power 
producers),"  wrote  Mieko 
Nishimizu.  vice  president  of 
the  bank's  south  Asia 
division,  in  a letter  to  the 
government 

Businessmen  say  that  the 
investigations  are  prompted 
by  the  government's  failure 
to  reform  tbe  state  owned 
power  companies,  whose 
dismal  performance  is  due  to 
large  line  losses  during 
transmission,  widespread 
inefficiency  and  corruption. 

While  the  government 
moves  to  resolve  the  issue,  it 
has  also  announced  a new 
power  generation  policy  to 
attract  fresh  investments.  Its 

main  /fiffwiniifp  fmm  Hip 
1994  policy  is  that  it  requires 
investors  to  promise  that 


local  foel  sources,  such  as 
coal,  gas  and  hydeL  would 
be  the  preferred  source  to 
run  new  plants  rather  than 
imported  fuels.  Equally 
significant,  there  are  no 
guaranteed  tariffs.  Investors 
will  have  to  sit  across  the 
table  and  negotiate  a tariff 
with  government  officials. 

But  the  consensus  in  the 
business  community  ts  that 
the  treatment  given  to  the 
previous  power  projects  has 
had  such  a detrimental 
effect  that  new  investors  will 
remain  wary. 

“There  is  a lack  of 
confidence  among  tPPs  over 
the  changing  views  of  the 
government.  This  experience 
will  have  a detrimental 
effect  on  the  new  power 
policy,"  says  Philip  Spencer, 
operations  director  of  the 
Karachi  based  Hubco. 

While  the  idea  of  selling 
power  to  India  excites  many 
analysts,  government 
leaders  concede  that  it  may 
be  a long  journey  from 
concept  to  reality. 

"It  is  not  an  easy  task." 
says  Haleem  Siddiqui.  junior 
minister  for  water  and 
power.  “Transporting 
electricity  requires 
infrastructure.  We  have 
transmission  problems 
within  our  own  country, 
waiting  to  be  tackled." 

Farhan  Bokhan 


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In  Newfoundland,  going  out  to  sea  is 
still  a good  way  to  make  a living. 


VIII 


FINANCIAL  TIMES  THURSDAY  SEPTEMBER 


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©>99B  Mobil  Corporation 


Mobil 

to  make  a difference. 


5v;  . 

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/